<PAGE> 1
As filed with the Securities and Exchange Commission on January 25, 1999
Registration No. 333-53821
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
AMENDMENT NO. 1
TO
FORM S-4
Registration Statement Under the Securities Act of 1933
----------------------------------
TRANSAMERICAN REFINING CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 2911 76-0229632
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(State or other jurisdiction of (Primary Standard (I.R.S. Employer Identification No.)
incorporation or organization) Industrial Classification
Number)
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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. [ ]
---------------------------
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
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16% Series A Senior Subordinated Notes due 2003 and 16% Series C Senior Subordinated Notes due 2003
($175,000,000 principal amount outstanding) ($25,000,000 principal amount outstanding)
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of
TRANSAMERICAN REFINING CORPORATION
---------------------------
The Exchange Offer will expire at 5:00 p.m., New York City time on
February 26, 1999, 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, as amended (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, each as amended (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 9 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 January 26, 1999.
<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 February 26,
1999, 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 June 30, 1999. 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.
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 (i) qualified institutional buyers in reliance upon Rule 144A under
the Securities Act and (ii) with a limited number of institutional accredited
investors within the meaning of Rule 501(a)(1), (2), (3) or (7) 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
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Page
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Available Information..................................................................................... iv
Special Note Regarding Forward-Looking Statements......................................................... iv
Prospectus Summary........................................................................................ 1
Risk Factors.............................................................................................. 9
The Exchange Offer........................................................................................ 24
Use of Proceeds........................................................................................... 30
The Company............................................................................................... 31
Selected Financial Data................................................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 33
Business.................................................................................................. 42
Management of the Company................................................................................. 56
Security Ownership of Certain Beneficial Owners and Management............................................ 60
Certain Relationships and Related Transactions............................................................ 60
Certain Federal Income Tax Considerations................................................................. 63
Certain Legal Considerations.............................................................................. 65
Description of Existing Indebtedness...................................................................... 66
Description of the Exchange Notes......................................................................... 68
Plan of Distribution...................................................................................... 101
Legal Matters............................................................................................. 101
Independent Accountants ................................................................................ 102
Financial Statements...................................................................................... F-1
Pro Forma Financial Statements............................................................................ PF-1
Glossary.................................................................................................. A-1
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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 an Internet site 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 to the Trustee and
the holders of the Notes the information required to be filed with the
Commission. The Company has agreed that, even if it is entitled under the
Exchange Act not to file such information with the Commission, it will
nonetheless continue to furnish to the Trustee and the holders of the Notes
information that would be required to be filed by the Company by Section 13 of
the Exchange Act 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, references to "TCR Holding" are to TCR Holding Corporation,
references to "TransContinental" are to TransContinental Refining Corporation
and the business and assets that were transferred to TransContinental on
December 15, 1998 by TARC and TCR Holding, references to "TEC" are to TARC's
sole stockholder, TransAmerican Energy Corporation, a wholly owned subsidiary of
TransAmerican Natural Gas Corporation ("TransAmerican"), and references to
"TransTexas" are to TEC's subsidiary, 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. Statements herein regarding the
plans or intentions of TCR Holding or TransContinental are based upon
information provided by the management thereof to TARC.
THE COMPANY
Prior to December 15, 1998, TARC owned a large petroleum refinery
located in the Gulf Coast region along the Mississippi River, approximately 20
miles from New Orleans, Louisiana. As a result of the Transaction (as defined),
TARC no longer owns the refinery, but maintains an equity interest in TCR
Holding. TCR Holding owns a controlling equity interest in TransContinental, the
corporation that owns the refinery. TransContinental'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 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"), which had a budget of $427 million. 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,
which commenced operation in September 1998. 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 allow for a significant increase in the
refinery's capacity to produce gasoline. TransContinental intends to operate the
existing units of the refinery and complete construction of additional units.
Since June 1997, TARC experienced unanticipated cost increases
resulting primarily from (i) acceleration of the construction schedule for the
Capital Improvement Program, resulting in extensive overtime charges, low
overall labor productivity and increased costs to expedite deliveries of
equipment, (ii) inadequate engineering quality on the Hydrodesulfurization Unit,
resulting in substantial rework and lower labor productivity, (iii) extensive
required refurbishment of used equipment, (iv) inadequate contractor estimates
and cost controls, work planning and reporting and (v) increased competition for
labor requiring higher labor compensation. Because of these factors, TARC
incurred costs substantially in excess of the June 1997 budget for the Capital
Improvement Program. Based upon the revised budget as of October 31, 1998,
estimated expenditures from June 13, 1997 to completion of the Capital
Improvement Program are anticipated to exceed the original budget by
approximately $285 million. At October 31, 1998, TARC had spent an aggregate of
$501.3 million on the Capital Improvement Program and had incurred accounts
payable and other short-term obligations relating thereto in the aggregate
amount of $59.0 million. TARC estimates that, as of October 31, 1998, additional
construction costs of $138 million to $159 million were required to complete the
Capital Improvement
1
<PAGE> 7
Program, depending upon the extent to which an unallocated contingency amount of
$21 million is used. Approximately $72.3 million of TARC's accounts payable and
other obligations (including intercompany bridge loans from TEC in the aggregate
principal amount of $25 million) were or will be paid with proceeds of the
securities sold in the Transaction. See "Business -- Capital Improvement
Program." 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 further cost overruns, over which TARC will not and
TransContinental may not have any control, and there can be no assurance that
any such projections or estimates will prove accurate. The Capital Improvement
Program, including the budget, is subject to change by TransContinental.
RECENT EVENTS
THE TRANSACTION
The Transaction was consummated on December 15, 1998 in order to
provide additional capital for construction of the refinery. The Transaction
included the following:
(i) the issuance by TARC of $150 million aggregate principal amount of
its 15% Senior Secured Notes due 2003 (the "New Notes") to certain purchasers
(the "New Lenders");
(ii) the transfer by TARC to TCR Holding of substantially all of its
assets (the "Refinery Assets") in exchange for (x) all of the capital stock of
TCR Holding, which includes the following,
(a) Class A Participating Preferred Stock, Series A and Class A
Participating Preferred Stock, Series B (the "TCR Voting Preferred
Stock"),
(b) Class B junior non-voting participating preferred stock
("Class B Preferred Stock"), Class C junior non-voting participating
preferred stock ("Class C Preferred Stock") and Class D junior
non-voting participating preferred stock ("Class D Preferred Stock"
and, together with the Class B Preferred Stock and the Class C
Preferred Stock, the "TCR Repurchasable Preferred Stock"),
(c) Class E junior non-voting participating preferred stock
(the "TCR Non-Repurchasable Preferred Stock" and, together with the TCR
Repurchasable Preferred Stock, the "TCR Non-Voting Preferred Stock"),
(d) Class A Voting Common Stock, Series A (the "TCR Voting
Common Stock"), and
(e) Class B Non-Voting Common Stock (the "TCR Non-Voting Common
Stock" and, together with the TCR Voting Common Stock, the "TCR Common
Stock"),
and (y) the assumption of debt and other specified obligations of TARC
(including the New Notes, approximately $43.5 million in post-Transaction
intercompany debt to TEC (the "TARC Working Capital Loan") and approximately $36
million in debt secured by certain tank storage and terminaling facilities (the
"Tank Storage Debt")) other than (A) the debt issued pursuant to the Loan
Agreement dated as of June 13, 1997, as amended, between TEC and TARC (the "TARC
Intercompany Loan"), (B) the Series A Notes, (C) the Series C Notes and (D)
certain accounts payable and other liabilities;
(iii) the transfer by TCR Holding to TransContinental of the Refinery
Assets and the assumption by TransContinental of the debt and other obligations
of TARC assumed by TCR Holding on the date of such transfer (including the New
Notes and the Tank Storage Debt) other than the TARC Working Capital Loan;
(iv) the acquisition from TARC by the New Lenders, certain holders (the
"TEC Holders") of TEC's 11 1/2% Senior Secured Notes due 2002 and 13% Senior
Secured Discount Notes due 2002 (the "TEC Notes") and certain of
2
<PAGE> 8
the holders of the Outstanding Notes (together with the TEC Holders, the
"Purchasers") of TCR Repurchasable Preferred Stock representing 30.0% of the
Residual Equity (as defined) of TCR Holding and TCR Non-Repurchasable Preferred
Stock representing 29.6% of the Residual Equity of TCR Holding. Affiliates of
Trust Company of the West (the "TCW Affiliates") received the TCR Non-Voting
Common Stock representing 5% of the Residual Equity of TCR Holding. Certain of
the Purchasers acquired the TCR Voting Common Stock representing 0.4% of the
Residual Equity and 59% of the voting power of TCR Holding. TARC retained the
TCR Voting Preferred Stock representing 30.6% of the Residual Equity and 41% of
the voting power of TCR Holding. The remaining 4.4% of the Residual Equity of
TCR Holding, in the form of TCR Non-Repurchasable Preferred Stock, initially was
retained by TARC and is expected to be offered to holders of certain of TARC's
outstanding common stock purchase warrants (the "TARC Warrants") in exchange for
such TARC Warrants. "Residual Equity" means the interest of the indicated
stockholders in the assets of TCR Holding upon a liquidation or winding up of
TCR Holding, which interest is subject to the prior payment of the liquidation
preference of the TCR Voting Preferred Stock and the TCR Non-Voting Preferred
Stock;
(v) the grant by TARC of a security interest in the TCR Voting
Preferred Stock to secure the TARC Intercompany Loan and the collateral
assignment of such security interest by TEC to secure the TEC Notes, the grant
by TCR Holding to TEC of a security interest in the common stock of
TransContinental to secure the TARC Working Capital Loan, the collateral
assignment of such security interest to secure the TEC Notes, and the provision
in the TCR Voting Preferred Stock of the right of holders of such stock in
certain circumstances to require TCR Holding to sell common stock of
TransContinental held by TCR Holding, or any assets received on exchange or sale
therefor, and apply the proceeds to reduce the liquidation preference and
certain accrued but unpaid dividend amounts on the TCR Voting Preferred Stock;
and
(vi) the purchase from TransContinental by the New Lenders of
TransContinental's 6% Participating Preferred Stock ("TransContinental Preferred
Stock").
As part of the Transaction, (i) the holders of TCR Holding capital
stock entered into a stockholders agreement providing for the election of two
nominees of TARC, two nominees of the TCW Affiliates and one nominee of an
affiliate of the Initial Purchaser as directors of TCR Holding and the election
of two nominees of TARC and two nominees of the TCW Affiliates as directors of
TransContinental, (ii) the stockholders of TransContinental entered into an
agreement providing for the election of one nominee of the holders of the
TransContinental Preferred Stock (which initially was a nominee of an affiliate
of the Initial Purchaser) and four nominees of TCR Holding as directors of
TransContinental, (iii) the holders of the TransContinental Preferred Stock
would have the right to elect a majority of the directors of TransContinental if
either of such stockholders agreements is breached, is not being complied with
or is adjudicated to be unenforceable, (iv) TransAmerican, as the sole
stockholder of TEC, and TEC, as the sole stockholder of TARC, agreed to elect a
representative of the TCW Affiliates as a director of TEC and of TARC,
respectively, (v) TCR Holding and TransContinental entered into registration
rights agreements or otherwise provided for certain registration rights relating
to their respective securities issued to the New Lenders in the Transaction,
(vi) TCR Holding and TransContinental entered into a services agreement with
TransTexas providing for certain services to be rendered to TCR Holding and
TransContinental by TransTexas and (vii) TEC or one of its affiliates was
granted certain rights to repurchase shares of the TCR Repurchasable Preferred
Stock (which would become voting stock upon exercise of such rights), which
could result in TEC and its affiliates owning a majority of the capital stock of
TCR Holding and being entitled to elect a majority of the directors of TCR
Holding and, indirectly, TransContinental. Such repurchase rights would only be
exercisable after the New Notes, the TEC Notes and the Notes have been fully
repaid and certain financial performance tests have been met. In addition, TARC
has the right to repurchase the shares of TCR Non-Voting Common Stock issued to
the TCW Affiliates pursuant to the Transaction for $5 million at any time during
the two-year period beginning December 15, 1998; provided, however, that if the
TCR Voting Preferred Stock remains outstanding after July 31, 1999, TARC will
have the option to repurchase such stock at a nominal cost.
3
<PAGE> 9
All of the above-described transactions as well as other agreements and
transactions necessary to facilitate or related to the foregoing, are referred
to herein as the "Transaction."
The following sets forth the organizational structure of TARC, TCR
Holding and TransContinental, giving effect to consummation of the Transaction
on the basis described above, and assuming that holders of 100% of the TARC
Warrants accept the exchange offer expected to be made therefor by TARC:
[organizational chart]
4
<PAGE> 10
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 March 5, 1999 (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 that 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)
5
<PAGE> 11
or similar 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 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
February 26, 1999.
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."
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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 Agreement 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"). 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.
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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 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 December 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 June 30, 1999.
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 (as defined) of the Company.
As of October 31, 1998, on a pro forma
basis giving effect to the Transaction,
the Company had approximately $844.3
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 (as defined) 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.
Certain Covenants................... The Indenture contains certain
covenants, including covenants that
limit: (i) indebtedness; (ii) restricted
payments; (iii) transactions with
affiliates; (iv) liens; (v) dividend and
other payment restrictions affecting
restricted subsidiaries; (vi) line of
business and (vii) 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.
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<PAGE> 14
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.
RISK THAT TARC WILL BE UNABLE TO SERVICE THE NOTES
TARC is the sole obligor with respect to the Notes. Neither TCR Holding
nor TransContinental have guaranteed the Notes. TARC and TCR Holding will
conduct no business operations directly and initially hold no cash or assets
other than the TCR Voting Preferred Stock and TCR Non-Repurchasable Preferred
Stock (with respect to TARC) and the common stock of TransContinental (with
respect to TCR Holding). TCR Holding's only sources of liquidity to pay
dividends to TARC will be dividends on the TransContinental common stock which
it holds and proceeds from the sale of such TransContinental common stock.
TARC's principal source of liquidity to pay interest on and principal of the
Notes will be dividends, if any, paid by TCR Holding on the TCR Voting Preferred
Stock. TransContinental will have no obligation to make dividends or other
distributions to TCR Holding and TCR Holding will have no obligation to pay any
dividends or advance any funds to TARC. TransContinental will be able to pay
dividends only if it has sufficient cash from operations. Several of the risks
described below will affect the availability of cash for TransContinental to pay
such dividends. In addition, TransContinental's ability to make dividends or
other distributions on its common stock is restricted by the indenture governing
the New Notes (the "New Notes Indenture") and by its obligations under the
TransContinental Preferred Stock. Indebtedness that TCR Holding and
TransContinental incurred in connection with the Transaction will, and
indebtedness that TCR Holding and TransContinental are permitted to incur in the
future may, restrict their ability to pay dividends or make other payments, and
there can be no assurance that TransContinental or TCR Holding will be permitted
legally to pay any dividends. In addition, TCR Holding is contractually
prohibited from selling any or all of its equity interest in TransContinental or
causing a liquidation of TransContinental.
TransContinental's ability under the New Notes Indenture to make
dividends or other distributions will be dependent, in part, on a determination
by the independent engineer who was appointed in connection with the Transaction
to monitor construction of the refinery on behalf of the holders of the New
Notes (the "Independent Engineer") of whether the following funds are sufficient
to complete the Capital Improvement Program: funds in the Disbursement Account
(as defined in the New Notes Indenture), plus 50% of Projected Net Operating
Cash Flow (as defined in the New Notes Indenture) for the 90-day period
commencing on the date a dividend is declared, plus an amount equal to the
portion of the proceeds of the Port Commission Bond Financing (as defined in the
New Notes Indenture) held by the entity serving as collateral agent or in a
similar capacity with respect to such financing plus, without duplication, cash
on hand that has been approved by TransContinental's Board of Directors to be
escrowed in a segregated account and allocated only for the purpose of
completion of the Capital Improvement Program. If any capital project is added
to the Capital Improvement Program that cannot be fully funded out of 50% of
Projected Net Operating Cash Flow during the relevant 90-day period plus such
other sources of funds, the New Notes Indenture will prohibit payment of
dividends to TCR Holding. The Capital Improvement Program may be amended at any
time by TransContinental's Board of Directors. A principal of the Independent
Engineer serves on TransContinental's Board of Directors as one of the designees
of the TCW Affiliates. The Independent Engineer has no prior experience with the
refinery or the Capital Improvement Program and may disagree with
TransContinental's refinery construction cost estimates and other aspects of the
Capital Improvement Program. Dividends or distributions might not be made by
TransContinental on its common stock, or, if made, might not be sufficient to
satisfy TCR Holding's obligations, including under the TCR Voting Preferred
Stock and the TARC Working Capital Loan.
The Independent Engineer and its principal who serves on
TransContinental's Board of Directors may, from time to time, be subject to
conflicts of interest in performing the duties described above. Resolutions of
such conflicts of interest could adversely affect the holders of the Notes.
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<PAGE> 15
For the above reasons, as well as others, there can be no assurance
that TCR Holding will be able to pay dividends on the TCR Voting Preferred Stock
or that TARC will be able to make required payments on the Notes.
CAPITAL IMPROVEMENT PROGRAM ENTAILS RISKS; ADDITIONAL FUNDS ARE REQUIRED TO
COMPLETE CONSTRUCTION OF THE REFINERY
The Capital Improvement Program entails 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 completion of the construction of the refinery or
increase the construction costs.
To complete the Capital Improvement Program TARC estimates, as of
October 31, 1998, that additional construction costs of $138 million to $159
million will be incurred, depending upon the extent to which an unallocated
contingency amount of $21 million is used. In addition, at October 31, 1998 TARC
had approximately $59.0 million of accounts payable and other short-term
obligations incurred in connection with the Capital Improvement Program.
The Transaction did not provide all of the funds that will be required
to satisfy TARC's and TransContinental's existing obligations and complete the
Capital Improvement Program. TARC estimates that, as of October 31, 1998,
approximately $86 million, in addition to funds received as a result of the
Transaction, would have been required to complete the Capital Improvement
Program. TARC believes that such funds will be available to TransContinental
from additional borrowings and other sources of capital, including cash flow
from operations. Such other sources of capital also are expected to include
certain electrical sub-station asset sales, an inventory financing facility,
sales tax rebates from the State of Louisiana and the issuance of port authority
revenue bonds. There can be no assurance that such additional funds will be
available and accordingly there can be no assurance that the Capital Improvement
Program or construction of the refinery will be completed. Failure of
TransContinental to obtain funds necessary to complete construction of the
refinery would have a material adverse effect on the value of the Notes and the
ability of TARC to satisfy its obligations under the Notes.
TARC has acted, and TransContinental is acting, as the general
contractor for the Capital Improvement Program. TransContinental or one of its
affiliates is constructing certain portions of the facilities. TARC and
TransContinental have engaged a number of specialty consultants and engineering
and construction firms to assist TransContinental in completing the Capital
Improvement Program, but there is no third party contractor which has guaranteed
completion, operation or performance of the refinery. TARC experienced recent
cost increases with respect to the Capital Improvement Program. If further
engineering problems, cost overruns or delays occur, the amount of additional
funds required would be increased. There can be no assurance that the Capital
Improvement Program or construction of the refinery will be completed. Costs
incurred in connection with the 1995 Program exceeded the budget therefor. TARC
and TransContinental have spent substantially more on the Capital Improvement
Program than was budgeted at the time the Capital Improvement Program was
initiated in June 1997. Pursuant to the Transaction, the Independent Engineer,
who has no prior experience with the refinery, has been appointed to monitor
construction on behalf of the holders of the New Notes. There can be no
assurance that there will not be future cost overruns or, that if such cost
overruns occur, there will be sufficient funds available to complete the
refinery. Failure of TransContinental to complete construction of the refinery
would have a material adverse effect on the value of the Notes.
BREACH OF NEW NOTES INDENTURE COVENANTS COULD ADVERSELY AFFECT VALUE OF THE
NOTES
An event of default under the New Notes Indenture will result if
TransContinental breaches the covenant therein providing that the costs of
completing Phase I of the Capital Improvement Program will not be more than $1
million in excess of the revised budget therefor and that the costs of
completing Phase II of the Capital Improvement Program will not be more than $6
million in excess of the revised budget therefor, in each case including
contingencies. At October 31, 1998, expenditures with respect to Phase I totaled
$321.0 million compared to the revised budget for Phase I of $370.1 million, and
expenditures with respect to Phase II totaled $180.3 million compared to the
revised
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<PAGE> 16
budget for Phase II of $342.1 million (excluding work, in the aggregate amount
of $52 million for both Phase I and Phase II, that had been completed but not
yet paid for). Based on TARC's revised budget as of October 31, 1998, estimated
expenditures to complete the Capital Improvement Program are anticipated to
exceed the June 1997 budget therefor by approximately $285 million. There is
substantial risk that the costs of completing Phase I or Phase II will exceed
the budget therefor by more than $1 million or $6 million, respectively.
An event of default under the New Notes Indenture will also result if
TransContinental breaches any other covenant contained therein, including the
requirement that it achieve a required level of EBITDA for specified fiscal
periods during which any of the New Notes are outstanding. TransContinental
believes that there may be fiscal periods during which it may not be possible to
achieve the specified level of EBITDA as a result of refining margins. There can
be no assurance that TransContinental will be able to comply with these
covenants.
If TransContinental breaches these or any other covenant contained in
the New Notes Indenture, an event of default would occur (after any applicable
notice and cure period), which could result in a foreclosure on
TransContinental's assets (which, indirectly, constitute substantially all of
the assets of TARC). Consequently, the breach by TransContinental of any
covenant contained in the New Notes Indenture, including failure of
TransContinental to complete Phase I or Phase II substantially on budget or to
achieve the required level of EBITDA, could have a material adverse effect on
the value of the Notes, including the potential loss of the entire investment
therein.
CONTROL BY CERTAIN PURCHASERS; INAPPLICABILITY OF INDENTURE COVENANTS TO
TRANSCONTINENTAL
Certain of the Purchasers hold approximately 59% of the voting power of
TCR Holding. Pursuant to the terms of a stockholders agreement among the holders
of capital stock of TCR Holding, such Purchasers are entitled to nominate,
directly or indirectly, a majority of the members of the board of directors of
each of TCR Holding and TransContinental. Consequently, TARC does not have the
ability unilaterally to cause (i) TransContinental to pay dividends or make
other payments to TCR Holding or (ii) TCR Holding to pay dividends or make any
other payments to TARC. The interests of such Purchasers may differ from those
of holders of the Notes. As a result, there can be no assurance that such
Purchasers will not take actions that might be adverse to the interests of the
holders of the Notes.
Neither TCR Holding nor TransContinental is a party to, or obligated by
the provisions of, the Indenture or the indenture governing the TEC Notes (the
"TEC Notes Indenture"). Actions or failures to act by TCR Holding or
TransContinental may result in defaults under the Indenture or the TEC Notes
Indenture. Such defaults may result from actions, or failures to act, such as
those that cause the acceleration of certain obligations of TransContinental or
TCR Holding, the failure to complete the refinery within the required time
frames or the incurrence by TransContinental or TCR Holding of Indebtedness (as
defined) in excess of amounts permitted in the Indenture or the TEC Notes
Indenture. Neither TCR Holding nor TARC will have the unilateral right to ensure
that TransContinental does not take actions and therefore to prevent the
occurrence of such defaults and TARC will not have the unilateral right to
ensure TCR Holding does not take such actions and therefore to prevent the
occurrence of such defaults. Actions by TransContinental will not be subject to
any of the restrictive covenants of the Indenture or the TEC Notes Indenture and
as a result, TransContinental may make investments, permit new liens on its
properties or incur dividend or other non-debt obligations that would reduce the
ability of TransContinental to make payments to TCR Holding and, consequently,
the ability of TCR Holding to pay dividends to TARC. TCR Holding is not subject
to any covenant in the Indenture or the TEC Notes Indenture prohibiting it from
making additional capital contributions to, or investments in, TransContinental.
Any additional capital contributions to, or investments in, TransContinental by
TCR Holding would reduce the funds available to TCR Holding that it could use to
pay dividends to TARC. Moreover, upon repayment of the TARC Intercompany Note,
TCR Holding will cease to be governed by the covenants in the TEC Notes
Indenture.
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<PAGE> 17
SIGNIFICANT OBLIGATIONS OF TCR HOLDING
To the extent TCR Holding fails to meet its payment obligations under
the TARC Working Capital Loan, TEC would have the right to foreclose on the
shares of common stock of TransContinental owned by TCR Holding. In addition,
even if the TARC Working Capital Loan has been repaid, to the extent TCR Holding
fails to pay dividends on the TCR Voting Preferred Stock, the holders of such
stock would have the right to force TCR Holding to sell the shares of common
stock of TransContinental owned by it and use the proceeds to repay the accrued
but unpaid dividend preference as well as the liquidation preference thereon.
Any such foreclosure or sale of the TransContinental common stock would have a
material adverse effect on the value of the Notes and may result in a total loss
of the investment made therein.
LIMITED OPERATING HISTORY
TransContinental was formed for the purpose of consummating the
Transaction and has a limited operating history. TARC's predecessor and indirect
parent corporation, TransAmerican, acquired the refining facility in 1971.
Between 1978 and 1983, TransAmerican 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. In January 1983, financial
difficulties prevented TransAmerican from completing certain units of the
refinery and forced a shutdown of operations. Certain units of the refinery have
operated intermittently since 1994. TARC incurred losses and negative cash flow
from operations because 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. TransContinental will decide to commence or suspend operations prior to
completing the Capital Improvement Program 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 TransContinental ultimately will
achieve profitable operations at, or positive cash flow from, the refinery.
VOLATILITY OF GROSS REFINING MARGINS MAY AFFECT RESULTS
TransContinental's income and cash flow are 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. It is anticipated that
TransContinental will buy crude oil and other feedstocks and sell refined
petroleum products on the spot market. TransContinental will maintain
inventories of crude oil, other feedstocks, intermediate products and refined
products, the values of which are subject to fluctuations in market prices. The
cost of crude oil and other feedstocks purchased by TransContinental and the
price of refined products sold by TransContinental may fluctuate widely due to
factors that are beyond TransContinental's control. 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
TransContinental's income and cash flow.
In order to manage its exposure to price risks in the marketing of its
refined products, TransContinental may enter into fixed price delivery
contracts, financial swaps and futures contracts as hedging devices. To ensure a
fixed price for its products, TransContinental 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. TransContinental may not benefit from
unexpected increases in refined product prices as a result of such contracts.
TARC's hedging activities have previously resulted in financial losses and
TransContinental's hedging activities may in the future expose TransContinental
to the risk of financial loss in certain circumstances. Hedging devices utilized
by TransContinental may not protect against its exposure to price risk.
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TRANSCONTINENTAL IS DEPENDENT ON A SINGLE SITE OF OPERATIONS
All of TransContinental's refining activities will be conducted at one
location. Refining operations are subject to inherent risks including fires,
floods, accidents and explosions. As a result, TransContinental's operations
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 management expects that TransContinental will maintain
insurance coverage against various losses at all times, TransContinental may not
be able to obtain sufficient coverage amounts at rates or on terms it considers
reasonable or acceptable. In addition, all losses from business interruption and
damages or liability for an accident may not be covered by insurance. The
occurrence of significant events against which TransContinental is not fully
insured, or of a number of lesser events against which TransContinental is fully
insured but subject to substantial deductibles, could materially and adversely
affect TransContinental's operations and financial condition. 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.
TRANSCONTINENTAL IS IN A HIGHLY COMPETITIVE INDUSTRY
TransContinental operates in a highly competitive industry.
TransContinental primarily competes with other refineries in the Gulf Coast
region. Many of these refineries are owned by large, integrated oil companies.
Because of their more diverse operations, stronger capitalizations or crude oil
supply arrangements, such integrated oil companies may be better able than
TransContinental to withstand volatile industry conditions, including shortages
or excesses of crude oil or refined products or intense price competition. The
principal competitive factors that will affect TransContinental'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.
SIGNIFICANT LEVERAGE
At October 31, 1998, on a pro forma basis giving effect to the
Transaction, total long-term debt, less current maturities, of TARC (including
the TARC Intercompany Loan) was approximately $1.028 billion, which represented
approximately 90.3% of the total capitalization of TARC. In addition, the
accretion on the TARC Intercompany Loan will increase the indebtedness
represented thereby from approximately $836.4 million at October 31, 1998, to
$920 million by June 15, 1999. The Exchange Notes will be unsecured obligations
of TARC and will be subordinated in right of payment to the prior payment in
full of all Senior Debt, including, without limitation, the TARC Intercompany
Loan. TARC is the sole obligor with respect to the Outstanding Notes and will be
the sole obligor with respect to the Exchange Notes.
TARC may require sources of liquidity other than payments from TCR
Holding, including equity or debt financings and asset sales, 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 TARC'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 TARC, 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 TARC
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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 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 TARC's assets to creditors upon any
dissolution, winding up, liquidation, reorganization, bankruptcy, insolvency,
receivership or other proceedings relating to TARC, 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 TARC, holders of the Exchange Notes may recover
less, ratably, than holders of Senior Debt and other creditors of TARC 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."
STRUCTURAL SUBORDINATION
As a result of the Transaction, (i) TARC continues to be the sole
obligor with respect to the Notes, (ii) substantially all of the assets of TARC
were transferred to TCR Holding and then to TransContinental and (iii)
TransContinental incurred or assumed indebtedness in the aggregate principal
amount of approximately $181 million (excluding trade payables and certain other
obligations) and is permitted to incur additional indebtedness, including the
additional indebtedness previously permitted to be incurred by TARC and $150
million of indebtedness not previously permitted plus additional New Notes
issued in satisfaction of interest obligations on outstanding New Notes. All
indebtedness of TCR Holding and TransContinental, as well as any preferred stock
issued by TCR Holding or TransContinental, will be structurally senior to the
Notes. TCR Holding and TransContinental are entitled to issue additional capital
stock without further consents from holders of the Notes and any stock so issued
will dilute TARC's interest in TransContinental. As a result of the above
factors, TARC's holding company structure could adversely affect TARC's ability
to meet its obligations to holders of the Notes.
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 TARC 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."
ENVIRONMENTAL MATTERS
Compliance Matters. TARC has been, and TransContinental is, subject to
federal, state and local laws, regulations and ordinances ("Pollution Control
Laws"), which regulate activities such as discharges to air and water and the
handling and disposal of solid and hazardous wastes. Such laws may require
substantial capital expenditures to ensure compliance and impose material civil
and criminal penalties and other sanctions for failure to comply. In general,
during the process of construction and start-up of the refinery, TARC has sought
to comply with Pollution Control Laws, including cooperating, as appropriate,
with regulatory authorities in an effort to ensure compliance and mitigate the
risk of enforcement action. TARC is not aware of any pending or threatened
enforcement action that is likely to have a
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material adverse effect on its future financial position, results of operations
or cash flow. The Company has made environmental compliance and permitting
issues an integral part of the refinery's start-up plans and has budgeted for
such capital expenditures in the Capital Improvement Program. There can be no
assurance, however, that TransContinental will not incur material capital
expenditures in excess of the amounts currently budgeted. In addition, Pollution
Control Laws that may be enacted in the future, as well as enforcement of
existing Pollution Control Laws, may require TransContinental to make material
additional capital expenditures in order to comply with such laws and
regulations or result in liabilities that could have a material adverse effect
on TransContinental's future financial position, results of operations or cash
flow.
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 the
refinery's operations. As a result, TARC believes that such matters will not
have a material adverse effect on TransContinental's future financial position,
results of operations or cash flow.
Requirements Under the Federal Clean Air Act.
Permitting: The federal Clean Air Act requires certain owners or
operators of facilities with air emissions to obtain permits before beginning
construction or modification of their facilities. Under Title V of the Clean Air
Act, states are required to implement an operating permit program that codifies
all federally enforceable limitations that are applicable to a particular
source. The Environmental Protection Agency (the "EPA") has approved Louisiana's
operating permit program. The operating permit is necessary for TransContinental
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's initial Title V
permit application under the Clean Air Act was deemed administratively complete.
As the construction of the refinery has progressed, however, TARC has revised
the design and operation of the refinery. As a result, TARC has reviewed its
permit application and determined that there may have been changes in the
configuration, start-up and potential emissions of certain of its air sources,
including the tank storage and terminaling facility. Consequently, in early
1998, TARC submitted a modified Title V permit application based on the
developments since the permit application was originally submitted.
TransContinental is in the process of evaluating and discussing with the
Louisiana Department of Environmental Quality (the "LDEQ") how the changes to
the permit application may affect its anticipated Title V permit. As a result,
there can be no assurances the application will be approved as submitted or that
additional expenditures required pursuant to such operating permit will not have
a material adverse effect on TransContinental's financial position, results of
operations or cash flow.
In a related matter, TARC has obtained a permit from the LDEQ under the
federal prevention of significant deterioration program. Pursuant to that
program, and as a result of the modifications to its Clean Air Act permit
application, the LDEQ recently informed TARC that it will be required to conduct
certain modeling of air emissions and additional review of new or modified
sources. The refinery may be required to modify its plans for refinery
construction or operations as a result of such modeling results, review or other
information submitted in connection with the revised Clean Air Act permit
application. Such modifications may result in material additional capital or
operating expenditures or lost revenue. In addition, the necessary Clean Air Act
permits may not be received by TransContinental in time for the start-up of
Phase II. In that event, TransContinental may not be able to run certain
equipment at maximum capacity until such permits are received.
Benzene Waste NESHAPS: 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. TransContinental will be required to comply with the
Benzene Waste
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NESHAPS as its refinery operations start up. TARC believes that compliance with
the Benzene Waste NESHAPS will not have a material adverse effect on
TransContinental'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.
Hazardous Organic NESHAPS: In addition, in 1995 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, and subsequently has amended such regulations. These regulations
set Maximum Achievable Control Technology ("MACT") standards for petroleum
refineries. 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 TransContinental'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.
Reformulated Gasoline Program: 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
TransContinental. 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 likely will 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, including 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
denied TARC's initial request for an individual baseline adjustment and other
regulatory relief. TARC recently submitted a revised petition. TransContinental
anticipates that it will continue to pursue regulatory relief with the EPA.
However, regulatory relief may not be granted. Any action taken by the EPA may
have a material adverse effect on TransContinental's future financial position,
results of operations or cash flow.
Requirements Under the Federal Clean Water Act. The federal Clean Water
Act regulates the discharge of industrial wastewater and stormwater into waters
of the United States through the use of discharge permits. The EPA has delegated
the federal pollution discharge permit program in Louisiana to the LDEQ. TARC's
pollution discharge permit expired in 1992; however, TARC submitted a permit
renewal application to the LDEQ before the expiration date, which allowed TARC
to continue to operate under the old permit beyond its original expiration date.
Since then, TARC has identified engineering, design and process changes to its
wastewater discharges and treatment system that are not currently reflected in
its permit application. TARC has informed the LDEQ that it will be submitting an
amended permit application to reflect these changes in the near future. The LDEQ
may include more stringent discharge limitations in the new permit or request
certain changes to processes at the refinery that may require additional
expenditures that could have a material adverse effect on TransContinental's
financial position, results of operations or cash flow.
Cleanup Matters. The refinery 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
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of hazardous substances and govern the use, storage, handling and disposal of
such substances. The refinery's operations generate, and in the past have
generated, hazardous substances. Over the past several years, TARC was engaged
in environmental cleanup or remedial work relating to or arising out of
operations or activities at the refinery. In addition, TARC was 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. A
follow up assessment was commenced in March 1996. 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. The LDEQ requested additional information and
TARC submitted such information in January 1998. 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 TransContinental's financial position,
results of operations or cash flow. However, because the work plans have not yet
been approved, the LDEQ or the EPA may require additional remediation or
investigation.
TARC has been identified as a potentially responsible party 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. It has been alleged that TARC, or
its predecessors, sent hazardous substances in the past to these sites. 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). 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,
may be considered potentially responsible for the costs of investigating and
cleaning up such releases, among other damages. 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 potentially responsible parties for a cleanup, the costs of
cleanup typically are allocated according to a volumetric or other standard
among the 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. With respect to the
remaining two sites, TARC's liability for each such matter has not been
determined. TARC anticipates that it may incur costs related to the cleanup at
each such site (and possibly including additional costs arising in connection
with any recovery or other actions brought pursuant or relating to such
matters). TARC believes that its or TransContinental's ultimate environmental
liabilities will not be significant. This determination is based in part on
review of the data available to TARC regarding the basis of TARC's alleged
liability at each site. Depending on the circumstances of the particular
Superfund site, other factors are analyzed, 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 responsible parties
(without giving effect to the ability of any other responsible parties to
contribute to or pay for any liabilities incurred) and the range of likely
cleanup costs at each such site. However, it is not possible at this time to
determine the ultimate environmental liabilities, if any, that may arise from
the matters discussed above.
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 indicated soil and groundwater contamination in several areas
on the property. As a result, the former owner submitted to the LDEQ plans for
the remediation of significant indicated contamination in such areas. TARC has
analyzed these investigations and has carried out further Phase II environmental
assessments to verify their results. TransContinental is expected 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
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contamination of the property. TARC 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, the funds set aside in the escrow account may not be
sufficient to pay all required remediation costs. As of October 31, 1998, TARC
had recognized a liability of $3.1 million for this contingency.
TEC and TARC have indemnified TCR Holding, TransContinental and the
Purchasers with respect to certain representations and warranties made in the
Securities Purchase Agreement and Asset Transfer Agreements executed in
connection with the Transaction, including representations and warranties
regarding environmental compliance.
MATERIAL LEGAL PROCEEDINGS COULD HAVE ADVERSE IMPACT
The Company has been and continues to be involved in a number of legal
proceedings. If one or more of any such matters are adversely determined against
the Company in any reporting period, such determination could have a material
adverse impact on the results of operations of the Company for that period.
LACK OF COMPLETE YEAR 2000 COMPLIANCE
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
information technology ("IT") systems to malfunction in and around the Year
2000. Such malfunctions may lead to significant business delays in the U.S. and
internationally. The Year 2000 problem will potentially impact the refining
industry because information necessary to monitor and control various process
units is controlled by computers. In addition to potential problems from
computer systems, potential problems could arise from equipment with embedded
chips, such as the various equipment utilized in the refining process and other
non-IT systems.
TransContinental has defined a Year 2000-compliant system as one
capable of correct identification, manipulation and calculation when processing
data in connection with the year change from December 31, 1999 to January 1,
2000. A Year 2000-compliant system is also capable of correct identification,
manipulation and calculation using leap years both alone and in conjunction with
other dates.
Not all of TARC's systems that were transferred to TransContinental are
compliant under the above definition. However, TARC has addressed and expects
TransContinental to continue to address the issues associated with this problem
in the following manner:
o In the first stage, TARC commenced preparation of an inventory
of all IT and non-IT systems, as well as equipment that could
have embedded chips, whether or not critical to the operation
of the refinery. TARC also compiled a listing of material
relationships with third parties with which TARC conducts
business. These relationships include contractors, suppliers
and public utilities. This stage of the Year 2000 compliance
process is approximately 95% complete.
o In stage two, the results of the inventory done in the first
stage are being assessed to determine the Year 2000 impact and
what actions need to be taken to obtain Year 2000 compliance.
For internal systems, actions needed range from obtaining
vendor certification of Year 2000 compliance, remediating
internal systems or replacing systems and equipment that cannot
be remediated. This stage is approximately 85% complete with
respect to internal systems. Major outstanding items include
receipt of vendor certifications and installation of Year 2000
upgrades for certain non-critical systems. A course of action
for remediation or replacement of all identified critical
internal systems has been determined. This stage will also
include surveying and obtaining information about Year 2000
readiness of its material third-party relationships, including
those of service providers such as
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TransTexas. Contingency plans will be developed for those third
parties that cannot satisfactorily demonstrate Year 2000
compliance.
o The third stage includes the repair, replacement or retirement
of systems. This stage of the Year 2000 process is ongoing and
is dependent upon the availability of upgrades from the
refinery's vendors, technician time to implement the upgrades
and notification from other third parties of Year 2000
compliance. TARC installed upgraded packaged software
throughout the organization. TARC began implementation of a new
financial reporting software system on September 1, 1998 that
will handle the recording of all financial transactions to the
general ledger, accounts payable, accounts receivable and other
subledgers, as well as facilitate the reporting of financial
results. Several operational systems are in various stages of
implementation, and should be completed prior to June 1999. The
vendors of these new systems have provided certification that
their respective software packages are Year 2000 compliant
according to TransContinental's definition. The refinery is
also heavily dependent upon the power infrastructure serving
the refinery and would be subject to business interruptions as
a result of the failure of those systems. TransContinental is
communicating with these third parties in order to obtain
assurances regarding Year 2000 readiness.
o The last stage of the implementation process, which is
approximately 40% complete, includes testing all of the changes
implemented individually and integrating those changes with all
of the systems of the refinery and its suppliers and customers.
Various forms of testing are used depending on the type of
change implemented. Each upgrade, to the extent economically
feasible, will be run through a test environment before it is
implemented. It is then tested to see how well it integrates
into the refinery's overall IT environment. TARC has not
employed, and TransContinental is not currently employing, any
independent verification processes of its systems' tests.
As of October 31, 1998, TARC had incurred costs of approximately $3
million with respect to its Year 2000 compliance program. TransContinental
anticipates additional costs of approximately $1 million to complete the Year
2000 compliance program.
Despite TARC's best efforts to ready its systems and infrastructure for
the Year 2000, there are many factors outside of TransContinental's control that
could affect the refinery's readiness for the Year 2000. Although
TransContinental believes that Year 2000 compliance will be accomplished by the
implementation of the program described above, there could be operational issues
with the new systems implemented that prevent resolution of the Year 2000
compliance issue in a timely manner. In such event, the refinery could be
required to implement a contingency plan for Year 2000 compliance. The refinery
could select from several alternative plans including remediation of its
software, installation of other third party vendor software or some combination
of alternatives. Substantial completion of these plans is expected by September
30, 1999 with continual refinement to the plans ongoing until all of the
refinery's critical systems and all critical third-party relationships have
demonstrated Year 2000 compliance.
The potential impact of the Year 2000 problem on the refinery could be
material, as virtually every aspect of the refining process will be affected.
The refinery may be adversely affected by this problem, depending on whether it
and the entities with which it does business address this issue successfully.
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 TARC's, TCR Holding's and TransContinental's financial position,
business strategy, plans and objectives of management for future operations and
expansion and modification of the refinery, sources of funds, capital
expenditures 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 believes
that
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their current views and expectations are 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, further cost overruns, personnel or materials
shortages, fluctuations in the commodity prices for petroleum and refined
products, casualty losses, conditions in the capital markets, competition and
lack of majority control over the operations of TransContinental. TARC 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. TARC 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.
TARC has been advised that TransTexas has taken the position, based in
part upon independent legal advice, that it was not required to 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 also includes TNGC, the sole stockholder of TransAmerican, TransAmerican,
TEC and TARC. 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 $270 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 7%) 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.
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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.
TEC may become a "personal holding company" (as defined in the Internal
Revenue Code) as a result of the Transaction. A corporation which is a personal
holding company ("PHC") is subject to a federal PHC tax of 39.6% on its PHC
taxable income. This tax is in addition to any regular federal income taxes that
might be imposed on such income. If TEC were a PHC for its tax year ending July
31, 1999, a significant risk exists that TEC would incur substantial PHC tax
liability. Although the determination depends in part on future events and facts
and upon interpretations of matters of law, TEC believes that the TNGC
Consolidated Group will not be subject to PHC taxes for its tax year ending July
31, 1999. If TCR Holding exercises its right to redeem the TCR Voting Preferred
Stock during the tax year ending July 31, 2000, although TEC and TARC will
likely be PHCs, TEC believes that neither TEC, TARC nor any member of the TNGC
Consolidated Group, would incur any PHC tax liability based on projected
earnings of any member of the TNGC Consolidated Group and such member's
offsetting deductions. If TCR Holding redeems the TCR Voting Preferred Stock
from TARC subsequent to July 31, 2000, TARC could incur a significant PHC tax
for the year of the redemption, although TEC expects that the likelihood of such
PHC tax being imposed is remote due to the significant incentives that TCR
Holding will have to redeem the TCR Voting Preferred Stock on or before July 31,
2000.
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. 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.
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CERTAIN BANKRUPTCY CONSIDERATIONS
An investment in the Exchange Notes involves certain risks in the event
that TARC 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, TCR Holding, TransContinental 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, TCR Holding
or TransContinental 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.
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.
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, TCR
Holding or TransContinental, 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.
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<PAGE> 28
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. 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> 29
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 January 22, 1999 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.
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<PAGE> 30
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 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 December 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 June 30, 1999.
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
25
<PAGE> 31
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").
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.
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<PAGE> 32
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;
(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
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<PAGE> 33
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:
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Facsimile: By Overnight Mail or Hand:
<S> <C> <C>
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) 549-6697
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.
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<PAGE> 34
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 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
29
<PAGE> 35
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 the Series
A Notes or the Series C Notes determine in its or their reasonable judgment that
(A) the Exchange 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) the Exchange Offer is not consummated
by January 24, 1999, (iii) applicable law or interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer or (iv) 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 (iv), 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.
30
<PAGE> 36
THE COMPANY
Prior to December 15, 1998, TARC owned a large petroleum refinery
located in the Gulf Coast region along the Mississippi River, approximately 20
miles from New Orleans, Louisiana. As a result of the Transaction, TARC no
longer owns the refinery, but maintains an equity interest in TCR Holding. TCR
Holding owns a controlling equity interest in TransContinental, the corporation
that owns the refinery. TransContinental'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 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"), which had a budget of $427 million. 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,
which commenced operation in September 1998. 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 allow for a significant increase in the
refinery's capacity to produce gasoline. TransContinental intends to operate the
existing units of the refinery and complete construction of additional units.
Since June 1997, TARC experienced unanticipated cost increases
resulting primarily from (i) acceleration of the construction schedule for the
Capital Improvement Program, resulting in extensive overtime charges, low
overall labor productivity and increased costs to expedite deliveries of
equipment, (ii) inadequate engineering quality on the Hydrodesulfurization Unit,
resulting in substantial rework and lower labor productivity, (iii) extensive
required refurbishment of used equipment, (iv) inadequate contractor estimates
and cost controls, work planning and reporting and (v) increased competition for
labor requiring higher labor compensation. Because of these factors, TARC
incurred costs substantially in excess of the June 1997 budget for the Capital
Improvement Program. Based upon the revised budget as of October 31, 1998,
estimated expenditures from June 13, 1997 to completion of the Capital
Improvement Program are anticipated to exceed the original budget by
approximately $285 million. At October 31, 1998, TARC had spent an aggregate of
$501.3 million on the Capital Improvement Program and had incurred accounts
payable and other short-term obligations relating thereto in the aggregate
amount of $59.0 million. TARC estimates that, as of October 31, 1998, additional
construction costs of $138 million to $159 million were required to complete the
Capital Improvement Program, depending upon the extent to which an unallocated
contingency amount of $21 million is used. Approximately $72.3 million of TARC's
accounts payable and other obligations (including intercompany bridge loans from
TEC in the aggregate principal amount of $25 million) were or will be paid with
proceeds of the securities sold in the Transaction. See "Business -- Capital
Improvement Program." 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 further cost overruns, over which TARC will not and
TransContinental may not have any control, and there can be no assurance that
any such projections or estimates will prove accurate. The Capital Improvement
Program, including the budget, is subject to change by TransContinental.
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.
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<PAGE> 37
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 the nine months ended October 31,
1998 and 1997, 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 No. 2 Vacuum Unit
operated intermittently between March 1994 and January 1997. The No. 2 Vacuum
Unit recommenced operations in May 1998 and the No. 2 Crude Unit commenced
operations in June 1998. The Delayed Coking Unit, HDS Unit and Sulfur Recovery
System have also commenced operations. TARC does not consider its historical
results to be indicative of future results.
<TABLE>
<CAPTION>
Nine Months
Ended October 31, Year Ended January 31,
-------------------------------------- ------------------------------------
1998 1998 1997 1998 1998 1997
---- ---- ---- ---- ---- ----
(Pro Forma) (Pro Forma)
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales ........................... $ -- $ 66,701 $ -- $ -- $ -- $ 10,857
Other ................................... -- 3,999 571 -- 2,828 --
--------- --------- --------- --------- --------- ---------
Total revenues ........................ -- 70,700 571 -- 2,828 10,857
Operating costs and expenses ............ -- 89,251 20,416 -- 30,030 54,004
General and administrative
expenses (1) .......................... -- 17,152 11,029 -- 19,196 11,848
--------- --------- --------- --------- --------- ---------
Operating loss .......................... -- (35,703) (30,874) -- (46,398) (54,995)
Equity in income (loss) before
extraordinary item of TransTexas ...... (229) (229) 45,185 44,552 44,552 12,325
Equity in loss of TCR Holding ........... (10,074) -- -- (12,647) -- --
Other income (expense) (2) ............. (9,410) (3,955) (19,874) (20,324 (15,251) 52,076
Extraordinary items (3) ................. -- (1,294) (84,422) -- (94,911) --
Net income (loss) ....................... (19,713) (41,181) (89,985) 11,581 (112,008) 9,406
Net income (loss) per common
share: (4)
Basic ................................. (0.66) (1.37) (3.00) 0.39 (3.73) 0.31
Diluted ............................... (0.66) (1.37) (3.00) 0.39 (3.73) 0.25
Dividends declared per
common share (5) ...................... -- -- -- -- -- --
Ratio of earnings to fixed charges(6) ... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
January 31, January 31, Year Ended July 31,
------------- ---------------------- ---------------------------------
1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales ........................ $ 176,229 $ 107,237 $ 71,035 $ 140,027 $ 174,143 $ --
Other ................................ 1 -- 551 552 3,035 5,178
------------ --------- --------- --------- --------- ---------
Total revenues ..................... 176,230 107,237 71,586 140,579 177,178 5,178
Operating costs and expenses ......... 206,798 121,770 86,383 171,411 187,208 13,238
General and administrative
expenses (1) ....................... 12,610 7,438 8,442 13,614 4,496 11,341
------------ --------- --------- --------- --------- ---------
Operating loss ....................... (43,178) (21,971) (23,239) (44,446) (14,526) (19,401)
Equity in income (loss) before
extraordinary item of TransTexas ... (2,584) (156) -- (2,428) -- --
Equity in loss of TCR Holding ........ ------------ --------- --------- --------- --------- ---------
Other income (expense) (2) .......... (9,999) (3,944) 89 (5,966) (2,827) 28
Extraordinary items (3) .............. (11,497) -- -- 11,497) -- --
Net income (loss) .................... (67,258) (26,071) (23,150) (64,337) (17,353) (19,373)
Net income (loss) per common
share: (4)
Basic .............................. (2.24) (0.87) (0.77) (2.14) (0.58) (0.65)
Diluted ............................ (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
October 31, October 31, ----------------------------------------------------------
1998 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
(Pro Forma)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ...... $ 17,955 $ (61,288) $ 70,501 $ (40,814) $ (17,707) $ (35,509)
Total assets ................... 1,169,469 1,514,791 1,195,449 564,241 518,323 229,462
Total long-term liabilities .... 1,034,052 1,121,727 979,805 440,775 368,091 112,719
Stockholder's equity ........... 110,628 249,096 160,408 81,363 71,957 77,250
</TABLE>
<TABLE>
<CAPTION>
July 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .... $ 5,965 $ (16,838) $ (1,494)
Total assets ................. 499,879 176,327 70,900
Total long-term liabilities .. 352,696 45,373 64,512
Stockholder's equity ......... 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. Other expense for the nine months ended October 31, 1998
includes income related to the cumulative effect of a change in accounting
principle of $2.7 million.
(3) Represents a loss on the early extinguishment of debt for the nine months
ended October 31, 1998 and 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 nine months ended October 31, 1998 and 1997, 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 $159.7 million, $189.9 million, $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.
32
<PAGE> 38
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
operated intermittently between March 1994 and January 1997. The No. 2 Vacuum
Unit recommenced operations in May 1998 and the No. 2 Crude Unit commenced
operations in June 1998. The Delayed Coking Unit, HDS Unit and Sulfur Recovery
System have also commenced operations. TARC does not consider its historical
results to be indicative of future results of TransContinental.
TARC's historical 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 the refinery's throughput capacity, the
feedstocks processed, and refined product yields.
As described in "Prospectus Summary -- Recent Events," on December 15,
1998, TARC completed the Transaction resulting in the transfer of the refinery
assets to TCR Holding in exchange for an equity interest in TCR Holding. TCR
Holding subsequently transferred the refinery assets to its wholly owned
subsidiary, TransContinental. Also as part of the Transaction, TARC sold a
majority of the capital stock of TCR Holding to third parties. As a result,
subsequent to December 15, 1998, TARC will not report any operating results, but
will reports its pro rata share of net earnings and losses of TCR Holding,
dividend income, if any, on the TCR Voting Preferred Stock and interest expense
on the TARC Intercompany Loan and the Notes. TARC expects to report a loss on
disposition of the stock of TCR Holding of approximately $121 million in the
fourth quarter of fiscal 1999.
Nine Months Ended October 31, 1998, Compared with the Nine Months Ended October
31, 1997
TARC's revenues for the nine months ended October 31, 1998 resulted
primarily from sales of finished and intermediate products. The average price of
approximately 1.0 million barrels of finished products sold was $15.42 per
barrel, and the average price of the 3.9 million barrels of intermediate
products sold was $13.39 per barrel. Finished products primarily include
distillate, diesel, kerosene, No. 2 fuel oil and liquid petroleum gas.
Intermediate products primarily include cutter, vacuum gas oil, and naphtha.
Other revenues consisted primarily of rental income from TARC's tank storage
facility acquired in September 1997.
Cost of products sold of $66.8 million for the nine months ended
October 31, 1998 related to the refining of approximately 4.8 million barrels of
feedstocks purchased at an average price of $14.06 per barrel.
During 1998 and 1997, TARC entered into processing arrangements whereby
TARC did not take title to feedstocks or refined products but processed
feedstocks in exchange for 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 $3.9 million and $3.1 million for
the nine months ended October 31, 1998 and 1997, respectively.
Operations and maintenance expense for the nine months ended October
31, 1998 increased to $14.1 million from $10.7 million for the same period in
1997, primarily due to the commencement of operations of certain units in Phase
I of the Capital Improvement Program.
33
<PAGE> 39
Depreciation and amortization expense for the nine months ended October
31, 1998 increased to $8.7 million from $5.4 million for the same period in
1997, primarily due to placing into operations certain units in Phase I of the
Capital Improvement Program.
General and administrative expenses increased to $17.2 million for the
nine months ended October 31, 1998 from $11.0 million for the same period in
1997. The increase was primarily due to increased salaries and training for
personnel added upon commencement of refinery operations, services agreement
fees and increased professional fees.
Taxes other than income taxes for the nine months ended October 31,
1998 increased to $3.6 million from $2.7 million for the same period in 1997,
primarily due to increased franchise taxes.
Loss on purchase commitments of $4.8 million for the nine months ended
October 31, 1997 related to a commitment to purchase 0.6 million barrels of
feedstock. These barrels have been sold to a third party and the Company has
processed the barrels pursuant to a processing agreement with the third party.
Interest income for the nine months ended October 31, 1998 increased to
$4.4 million from $3.0 million for the same period in 1997, primarily due to the
temporary investment of proceeds from the TARC Intercompany Loan and the Notes.
Net interest expense for the nine months ended October 31, 1998 decreased to
$10.8 million from $13.9 million for the same period in 1997, due primarily to
increased interest capitalization. During the nine months ended October 31,
1998, TARC capitalized approximately $118.7 million of interest related to
Capital Improvement Program additions compared to $64.9 million for the nine
months ended October 31, 1997.
The equity in loss of TransTexas for the nine months ended October 31,
1998 of $(0.2) million reflects TARC's equity interest in TransTexas through
April 30, 1998. TARC distributed all of its shares of TransTexas common stock to
TEC in April 1998. Equity in income of TransTexas before extraordinary item for
the nine months ended October 31, 1997 of $45.2 million was due primarily to a
$540 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 a share repurchase program by TransTexas. 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 nine months ended October 31, 1997. 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 loss on the early extinguishment of debt of $1.3 million for the
nine months ended October 31, 1998 is a result of the redemption of $7.0 million
of TARC Notes (as defined) in February 1998. The loss on the early retirement of
debt of $84.4 million for the nine months ended October 31, 1997 was a result of
the completion of the TARC Notes Tender Offer as described in the Notes to
Financial Statements
The cumulative effect of a change in accounting principle of $2.7
million for the nine months ended October 31, 1998 relates to TARC's change to
the deferral method of accounting for turnaround costs from the accrual method,
as described in the Notes to Financial Statements.
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 during fiscal 1998 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).
34
<PAGE> 40
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 during fiscal 1998 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 fiscal 1997 and fiscal 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.
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
during fiscal 1998, 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 and
processed pursuant to a processing agreement with the third party. TARC retained
all 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 a share repurchase
program by TransTexas. 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
35
<PAGE> 41
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.
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.
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.
36
<PAGE> 42
Other income for the year ended January 31, 1997 was $56.5 million,
which was primarily a result of the $56.2 million gain on the sale of 4.55
million shares of TransTexas stock in March 1996. Other income for the year
ended January 31, 1996 was $2.1 million, primarily resulting from trading gains
on futures contracts.
Six Months Ended January 31, 1996, Compared with the Six Months Ended January
31, 1995
Total revenues for the six months ended January 31, 1996 increased
$35.6 million to $107.2 million from $71.6 million in the same period in 1995,
primarily due to an increase in the volume of products sold to 6.1 million
barrels in 1996 from 4.2 million barrels in 1995. In addition, $1.2 million of
the increase was due to an increase in the average product sales price of $0.19
per barrel in 1996 over 1995.
Cost of products sold for the six months ended January 31, 1996
increased $36.2 million to $110.1 million from $73.9 million for the same period
in 1995, primarily due to an increase in the volume of products sold, partially
offset by a decrease in the average price of feedstocks purchased.
Operations and maintenance expense for the six months ended January 31,
1996 increased $0.2 million to $7.9 million from $7.7 million for the same
period in 1995, primarily due to an increase in the number of days the vacuum
unit was operating.
Depreciation and amortization expense for the six months ended January
31, 1996 increased $0.5 million to $3.2 million from $2.7 million for the same
period in 1995, primarily due to the transfer of certain terminal facilities and
tankage equipment from construction in progress to depreciable assets during the
1996 period.
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
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. As a result of the Transaction, TARC will no longer
operate the refinery, and will be dependent primarily on dividends from TCR
Holding in order to meet its debt service and working capital requirements. TCR
Holding is a holding company with no business operations. TCR Holding's only
sources of liquidity will be dividends on the TransContinental common stock that
it holds and proceeds from the sale of such TransContinental common stock.
TransContinental will have no obligation to make dividends or other
distributions to TCR Holding. TransContinental will be able to pay dividends
only if it has sufficient cash from operations. In addition, TransContinental's
ability to make dividends or other distributions on its common stock is
restricted by the New Notes Indenture and the terms of the TransContinental
Preferred Stock. TransContinental's ability to make dividends or other
distributions under the New Notes Indenture will be dependent, in part, on a
determination by the Independent Engineer of whether the following funds are
sufficient to complete the
37
<PAGE> 43
Capital Improvement Program: funds in the Disbursement Account (as defined in
the New Notes Indenture), plus 50% of Projected Net Operating Cash Flow (as
defined in the New Notes Indenture) for the 90-day period commencing on the date
a dividend is declared, plus an amount equal to the portion of the proceeds of
the Port Commission Bond Financing (as defined in the New Notes Indenture) held
by the entity serving as collateral agent or in a similar capacity with respect
to such financing plus, without duplication, cash on hand that has been approved
by TransContinental's Board of Directors to be escrowed in a segregated account
and allocated only for the purpose of completion of the Capital Improvement
Program. If any capital project is added to the Capital Improvement Program that
cannot be fully funded out of cash flow (as defined) during the relevant 90-day
period plus such other sources of funds, the New Notes Indenture prohibits
payment of dividends to TCR Holding. The Capital Improvement Program may be
amended at any time by TransContinental's Board of Directors. Dividends or
distributions might not be made by TransContinental on its common stock, or, if
made, might not be sufficient to satisfy TCR Holding's obligations, including
under the terms of the TCR Voting Preferred Stock and the TARC Working Capital
Loan. TARC may not be able to satisfy its working capital and debt service
obligations. As a result, TARC's investment in TCR Holding, including the
carrying value of the TCR Voting Preferred Stock, could be impaired or TARC may
not be able to meet its obligations as they become due. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
As of October 31, 1998, TARC and TEC had deposited an aggregate of $529
million into accounts (collectively, the "TARC Disbursement Account") from which
disbursements were 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 TEC Notes Indenture, Firstar
Bank of Minnesota, N. A., as Disbursement Agent, and Baker & O'Brien, Inc., as
Construction Supervisor. See 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. As of October 31, 1998, substantially all of the amounts deposited
in the TARC Disbursement Account had been expended for the designated 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 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. During the nine months ended October 31,
1998 and 1997, TARC processed approximately 1.6 million barrels and 6.4 million
barrels, respectively, pursuant to the processing agreement. Income from this
processing agreement was $3.9 million and $3.1 million for the nine months ended
October 31, 1998 and 1997, respectively.
As a result of TARC's failure to meet its obligations under the
Registration Rights Agreements, TARC had accrued approximately $0.1 million in
liquidated damages as of October 31, 1998. Such amount accrued at a rate of
$10,000 per week from July 28, 1998 until November 25, 1998, and thereafter at a
rate of $30,000 per week until such date as the registration statement relating
to the Exchange Offer, of which this Prospectus is a part, is declared effective
by the Commission.
TEC had made advances to TARC pursuant to a $50 million promissory note
due June 14, 2002 which bears interest in an amount equal to a fixed semi-annual
interest payment of $2.8 million, prorated based on the average outstanding
balance of TARC's note to TEC and the average outstanding balance of all notes
between TransTexas and TEC. The note is secured by a security interest in all of
the common stock of TransContinental owned by TCR Holding. Interest payments are
due and payable each June 15 and December 15. As of October 31, 1998, the
outstanding balance under the note was $47.0 million. At December 15, 1998, the
outstanding balance of the note was $49.5 million. In connection with the
Transaction, $6.0 million was repaid to TEC and the obligations under the note
were assumed by TCR Holding.
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<PAGE> 44
Subsequent to October 31, 1998, TARC entered into an intercompany
bridge loan with TEC for an aggregate principal amount of $25 million. In
connection with the Transaction, approximately $25 million of the proceeds of
the New Notes was used to repay the intercompany bridge loan.
In connection with the Transaction, TARC, TEC and TransContinental
entered into an expense reimbursement agreement pursuant to which certain of
TARC's and TEC's expenses related to compliance with existing debt instruments
will be reimbursed by TransContinental.
During the nine months ended October 31, 1998, TEC contributed $12.8
million to TARC for general corporate purposes and $116.1 million for use in the
Capital Improvement Program from funds available in a disbursement account
intended for such purposes.
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 TransContinental to incur any
additional significant expenses for environmental compliance during fiscal 1999
other than those budgeted for the Capital Improvement Program; however,
TransContinental will control any changes to the Capital Improvement Program and
the budget therefor. There is no assurance that costs incurred to comply with
environmental laws will not have a material adverse effect on TransContinental'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 the Notes to Financial Statements.
INFLATION AND CHANGES IN PRICES
TARC's revenues and feedstock costs were, and TransContinental's
revenues and feedstock costs will continue to be, affected by changes in the
prices of petroleum and petroleum products. TransContinental'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 its control.
From time to time, TARC entered 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 was not to enter into fixed
price or other purchase commitments in excess of anticipated processing
requirements. TARC believes that these futures transactions did not constitute
speculative trading as specified under and prohibited by the TEC Notes
Indenture.
IMPACT OF YEAR 2000 ISSUE
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
information technology ("IT") systems to malfunction in and around the Year
2000. Such malfunctions may lead to significant business delays in the U.S. and
internationally. The Year 2000 problem will potentially impact the refining
industry because information necessary to monitor and control various process
units is controlled by computers. In addition to potential problems from
computer systems, potential problems could arise from equipment with embedded
chips, such as the various equipment utilized in the refining process and other
non-IT systems.
TransContinental has defined a Year 2000-compliant system as one
capable of correct identification, manipulation and calculation when processing
data in connection with the year change from December 31, 1999 to January 1,
2000. A Year 2000-compliant system is also capable of correct identification,
manipulation and calculation using leap years both alone and in conjunction with
other dates.
39
<PAGE> 45
Not all of TARC's systems that were transferred to TransContinental are
compliant under the above definition. However, TARC has addressed and expects
TransContinental to continue to address the issues associated with this problem
in the following manner:
o In the first stage, TARC commenced preparation of an inventory
of all IT and non-IT systems, as well as equipment that could
have embedded chips, whether or not critical to the operation
of the refinery. TARC also compiled a listing of material
relationships with third parties with which TARC conducts
business. These relationships include contractors, suppliers
and public utilities. This stage of the Year 2000 compliance
process is approximately 95% complete.
o In stage two, the results of the inventory done in the first
stage are being assessed to determine the Year 2000 impact and
what actions need to be taken to obtain Year 2000 compliance.
For internal systems, actions needed range from obtaining
vendor certification of Year 2000 compliance, remediating
internal systems or replacing systems and equipment that cannot
be remediated. This stage is approximately 85% complete with
respect to internal systems. Major outstanding items include
receipt of vendor certifications and installation of Year 2000
upgrades for certain non-critical systems. A course of action
for remediation or replacement of all identified critical
internal systems has been determined. This stage will also
include surveying and obtaining information about Year 2000
readiness of its material third-party relationships, including
those of service providers such as TransTexas. Contingency
plans will be developed for those third parties that cannot
satisfactorily demonstrate Year 2000 compliance.
o The third stage includes the repair, replacement or retirement
of systems. This stage of the Year 2000 process is ongoing and
is dependent upon the availability of upgrades from the
refinery's vendors, technician time to implement the upgrades
and notification from other third parties of Year 2000
compliance. TARC installed upgraded packaged software
throughout the organization. TARC began implementation of a new
financial reporting software system on September 1, 1998 that
will handle the recording of all financial transactions to the
general ledger, accounts payable, accounts receivable and other
subledgers, as well as facilitate the reporting of financial
results. Several operational systems are in various stages of
implementation, and should be completed prior to June 1999. The
vendors of these new systems have provided certification that
their respective software packages are Year 2000 compliant
according to TransContinental's definition. The refinery is
also heavily dependent upon the power infrastructure serving
the refinery and would be subject to business interruptions as
a result of the failure of those systems. TransContinental is
communicating with these third parties in order to obtain
assurances regarding Year 2000 readiness.
o The last stage of the implementation process, which is
approximately 40% complete, includes testing all of the changes
implemented individually and integrating those changes with all
of the systems of the refinery and its suppliers and customers.
Various forms of testing are used depending on the type of
change implemented. Each upgrade, to the extent economically
feasible, will be run through a test environment before it is
implemented. It is then tested to see how well it integrates
into the refinery's overall IT environment. TARC has not
employed, and TransContinental is not currently employing, any
independent verification processes of its systems' tests.
As of October 31, 1998, TARC had incurred costs of approximately $3
million with respect to its Year 2000 compliance program. TransContinental
anticipates additional costs of approximately $1 million to complete the Year
2000 compliance program.
Despite TARC's best efforts to ready its systems and infrastructure for
the Year 2000, there are many factors outside of TransContinental's control that
could affect the refinery's readiness for the Year 2000. Although
TransContinental believes that Year 2000 compliance will be accomplished by the
implementation of the program
40
<PAGE> 46
described above, there could be operational issues with the new systems
implemented that prevent resolution of the Year 2000 compliance issue in a
timely manner. In such event, the refinery could be required to implement a
contingency plan for Year 2000 compliance. The refinery could select from
several alternative plans including remediation of its software, installation of
other third party vendor software or some combination of alternatives.
Substantial completion of these plans is expected by September 30, 1999 with
continual refinement to the plans ongoing until all of the refinery's critical
systems and all critical third-party relationships have demonstrated Year 2000
compliance.
The potential impact of the Year 2000 problem on the refinery could be
material, as virtually every aspect of the refining process will be affected.
The refinery may be adversely affected by this problem, depending on whether it
and the entities with which it does business address this issue successfully.
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, TCR Holding's
and TransContinental's financial positions, business strategy, plans and
objectives of management for future operations and expansion and modification of
the refinery, sources of funds and capital expenditures, including, but not
limited to, words such as "anticipates," "expects," "believes," "estimates,"
"intends," "projects" and "likely" indicate forward-looking statements. TARC's,
TCR Holding's and TransContinental's management believe that their 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, further cost overruns, personnel or materials
shortages, fluctuations in commodity prices for petroleum and refined products,
casualty losses, conditions in the capital markets, competition and lack of
majority control over the operations of TransContinental.
41
<PAGE> 47
BUSINESS
GENERAL
Prior to December 15, 1998, TARC owned a large petroleum refinery
located in the Gulf Coast region along the Mississippi River, approximately 20
miles from New Orleans, Louisiana. As a result of the Transaction, TARC no
longer owns the refinery, but maintains an equity interest in TCR Holding. TCR
Holding owns a controlling equity interest in TransContinental, the corporation
that owns the refinery. TransContinental'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 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"), which had a budget of $427 million. 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,
which commenced operation in September 1998. 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 allow for a significant increase in the
refinery's capacity to produce gasoline. TransContinental intends to operate the
existing units of the refinery and complete construction of additional units.
Since June 1997, TARC experienced unanticipated cost increases
resulting primarily from (i) acceleration of the construction schedule for the
Capital Improvement Program, resulting in extensive overtime charges, low
overall labor productivity and increased costs to expedite deliveries of
equipment, (ii) inadequate engineering quality on the Hydrodesulfurization Unit,
resulting in substantial rework and lower labor productivity, (iii) extensive
required refurbishment of used equipment, (iv) inadequate contractor estimates
and cost controls, work planning and reporting and (v) increased competition for
labor requiring higher labor compensation. Because of these factors, TARC
incurred costs substantially in excess of the June 1997 budget for the Capital
Improvement Program. Based upon the revised budget as of October 31, 1998,
estimated expenditures from June 13, 1997 to completion of the Capital
Improvement Program are anticipated to exceed the original budget by
approximately $285 million. At October 31, 1998, TARC had spent an aggregate of
$501.3 million on the Capital Improvement Program and had incurred accounts
payable and other short-term obligations relating thereto in the aggregate
amount of $59.0 million. TARC estimates that, as of October 31, 1998, additional
construction costs of $138 million to $159 million were required to complete the
Capital Improvement Program, depending upon the extent to which an unallocated
contingency amount of $21 million is used. Approximately $72.3 million of TARC's
accounts payable and other obligations (including intercompany bridge loans from
TEC in the aggregate principal amount of $25 million) were or will be paid with
proceeds of the securities sold in the Transaction. See " -- Capital Improvement
Program." 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 further cost overruns, over which TARC will not and
TransContinental may not have any control, and there can be no assurance that
any such projections or estimates will prove accurate. The Capital Improvement
Program, including the budget, is subject to change by TransContinental.
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 95.2% in 1997 from approximately 83.1% in 1987. The refinery
utilization rate is an important factor
42
<PAGE> 48
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 TransContinental's refining margins.
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 15.2 15.6
Utilization (%)....... 83.1 84.7 86.6 87.1 86.0 87.9 91.5 92.6 91.9 94.1 95.2
Demand for refined
products (MMBpd).... 16.7 17.3 17.3 17.0 16.7 17.0 17.2 17.7 17.7 18.3 18.6
</TABLE>
- ----------
Source: Energy Information Administration.
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, TransContinental is in the
process of expanding, modifying and adding other processing units, tankage and
offsite facilities as part of the Capital Improvement Program. Completion of the
Capital Improvement Program will enable the refinery to process heavy crude and
other purchased feedstocks, as well as intermediate refined products, into
finished and intermediate products, including NGLs, naphtha, conventional
gasoline, No. 2 fuel oil, VGO, sulfur and petroleum coke. The Capital
Improvement Program includes expenditures necessary to enable the refinery to
comply with certain existing air and water discharge regulations and with
federal standards with respect to gasoline. Prior to the Transaction, TARC
acted, and TransContinental is acting, as general contractor. However, TARC and
TransContinental have engaged a number of specialty consultants and engineering
and construction firms to assist 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. Shaw Constructors, Inc. has been engaged to
provide full construction services for the No. 2 Reformer, the fluid catalytic
cracking unit and the alkylation unit. The Capital Improvement Program may
change following consummation of the Transaction.
The following is a brief description of the units and offsite
facilities that have been or will be added or improved during the Capital
Improvement Program:
PHASE I:
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 is designed to process
atmospheric tower bottoms into VGO and, with the addition of cutterstocks, into
No. 6 residual fuel oil. The No. 2 Vacuum Unit processes bottoms from the No. 2
Crude Unit. Tower bottoms from the No. 2 Vacuum Unit are 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. The No. 2 Vacuum Unit recommenced operations in May
1998.
43
<PAGE> 49
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. The No. 2 Crude
Unit commenced operations in June 1998.
DELAYED COKING UNIT. The refinery's Visbreaking Unit has been converted
to a Delayed Coking Unit. The process engineering for this conversion was
completed by ABB Lummus Crest Inc. and construction was completed by Fluor
Daniel, Inc. 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 the refinery or sold to
other refiners for upgrading. Petroleum coke will be produced as a by-product of
the coking process. The Delayed Coking Unit commenced operations in September
1998.
NAPHTHA PRETREATER. TARC purchased a used naphtha pretreater, which it
disassembled and moved to the refinery site. This unit produces 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. This unit commenced operation in November 1998.
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.
TransContinental intends to defer additional expenditures on the No. 2 Reformer
until April 1999.
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 installed two new reactors, and added another
fractionation section to permit independent operation of both trains. Each train
is capable of treating either distillate or VGO depending on unit or product
requirements. This unit was completed in June 1998.
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 an additional 220 LT/D unit in February 1999. 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.
PHASE II:
FLUID CATALYTIC CRACKING (FCC) UNIT. The refinery'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. 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
44
<PAGE> 50
conventional catalytic cracking processes. TransContinental 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. is providing detailed design
engineering and Shaw Constructors, Inc. is providing full construction services
for the FCC Unit. All major equipment has been procured, delivered and erected.
FCC FLUE GAS SCRUBBER. TransContinental 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 Shaw
Constructors, Inc. is providing construction services for this work.
COMBINED PHASE I AND PHASE II:
OFFSITE FACILITIES/TANKAGE. TARC has added steam-generating capacity,
air compression equipment and new electrical equipment. A marine vapor recovery
system has been installed at the terminal docks. TransContinental is adding
equipment necessary to load petroleum coke at one of its docks. TransContinental
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 purchased an
adjacent storage terminal to provide additional storage. 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 certain 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.
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 process units to be added as part
of the Capital Improvement Program as required by Occupational Safety and Health
Administration ("OSHA") regulations.
CAPITAL BUDGET AND EXPENDITURES
The following table sets forth certain information with respect to the
Capital Improvement Program, including the original budget as of June 13, 1997,
expenditures as of October 31, 1998 and the revised budget as of October 31,
1998:
45
<PAGE> 51
<TABLE>
<CAPTION>
Original Expenditures to Revised
Budget (1) October 31, 1998 (2) Budget (3)
------------ -------------------- ----------
(dollars in (dollars in (dollars in
millions) millions) millions)
<S> <C> <C> <C> <C>
PHASE I:
No. 2 Vacuum Unit .................... $ 0.0 $ 0.0 $ 0.0
Crude Unit ........................... 3.0 8.4 8.9
Delayed Coking Unit .................. 27.0 77.9 81.2
Naphtha Pretreater ................... 12.0 21.5 24.0
No. 2 Reformer (4) ................... 9.0 2.1 14.6
HDS Unit ............................. 24.0 40.8 49.5
Sulfur Recovery System ............... 53.0 65.8 73.7
Offsite Facilities/Tankage ........... 46.0 87.8 96.6
Other ................................ 3.0 0.5 0.4
Engineering and Administrative ....... 7.0 16.2 16.2
Contingencies (5) .................... 39.0 -- 5.0
-------- -------- --------
Total Phase I ................. 223.0 321.0 370.1
-------- -------- --------
PHASE II:
FCC Unit ............................. 115.0 127.3 204.4
FCC Flue Gas Scrubber ................ 14.0 9.8 14.4
Alkylation Unit ...................... 24.0 21.8 57.6
Offsite Facilities/Tankage ........... 26.0 19.6 40.7
Other ................................ 2.0 0.0 0.0
Engineering and Administrative ....... 3.0 1.8 4.0
Fee to Contractor .................... 0.0 0.0 5.0
Contingencies(5) ..................... 20.0 -- 16.0
-------- -------- --------
Total Phase II ................ 204.0 180.3 342.1
-------- -------- --------
Total Phase I and Phase I .. $ 427.0 $ 501.3 $ 712.2
======== ======== ========
</TABLE>
- -----------------
(1) Budget as of June 13, 1997 for estimated expenditures from June 13, 1997 to
completion.
(2) From June 13, 1997 through October 31, 1998. In addition to these
expenditures, approximately $52 million of work has been completed but not
yet paid as of October 31, 1998.
(3) Revised budget as of October 31, 1998 for estimated expenditures from June
13, 1997 to completion.
(4) The No. 2 Reformer will not be considered part of Phase I for purposes of
the Phase I performance tests required to be met by the New Notes Indenture.
(5) 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.
CAPITAL BUDGET STATUS
Since June 1997, TARC experienced unanticipated cost increases
resulting primarily from (i) acceleration of the construction schedule for the
Capital Improvement Program, resulting in extensive overtime charges, low
overall labor productivity and increased costs to expedite deliveries of
equipment, (ii) inadequate engineering quality on the
46
<PAGE> 52
Hydrodesulfurization Unit, resulting in substantial rework and lower labor
productivity, (iii) extensive required refurbishment of used equipment, (iv)
inadequate contractor estimates and cost controls, work planning and reporting
and (v) increased competition for labor requiring higher labor compensation.
Because of these factors, TARC incurred costs substantially in excess of the
June 1997 budget for the Capital Improvement Program. Based upon the revised
budget as of October 31, 1998, estimated expenditures from June 13, 1997 to
completion of the Capital Improvement Program are anticipated to exceed the
original budget by approximately $285 million. At October 31, 1998, TARC had
spent an aggregate of $501.3 million on the Capital Improvement Program and had
incurred accounts payable and other short-term obligations relating thereto in
the aggregate amount of $59.0 million. TARC estimates that, as of October 31,
1998, additional construction costs of $138 million to $159 million were
required to complete the Capital Improvement Program, depending upon the extent
to which an unallocated contingency amount of $21 million is used. Approximately
$72.3 million of TARC's accounts payable and other obligations (including
intercompany bridge loans from TEC in the aggregate principal amount of $25
million) were or will be paid with proceeds of the securities sold in the
Transaction. 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 further cost overruns, over which TARC will not and
TransContinental may not have any control, and there can be no assurance that
any such projections or estimates will prove accurate. The Capital Improvement
Program, including the budget, is subject to change by TransContinental.
COMPLETION STATUS
TARC achieved Mechanical Completion (as defined in the indenture
governing the TEC Notes (the "TEC Notes Indenture")) of the Delayed Coking Unit,
the HDS Unit and the related portion of the Sulfur Recovery System in June 1998.
TransContinental believes that the remainder of Phase I (other than the No. 2
Reformer) will reach Mechanical Completion in February 1999. TransContinental
intends to defer additional expenditures on the No. 2 Reformer until April 1999.
PORT COMMISSION BONDS
TARC and the South Louisiana Port Commission ("Port Commission") have
entered into negotiations with respect to the issuance of revenue bonds which,
if issued, are expected to provide net proceeds to TransContinental of
approximately $50 million, net of anticipated interest reserves, fees and
expenses. It is expected that TransContinental will continue these negotiations.
Of such proceeds, it is anticipated that approximately $33 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. TransContinental would operate such facilities
pursuant to a long-term (25-year) lease. TARC has been working, and
TransContinental will work, 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. If such
tax-exempt bonds are not issued, in order to fund the Capital Improvement
Program, TransContinental must obtain more capital from other sources than it
had previously anticipated. See "Risk Factors--Capital Improvement Program
Entails Risks; Additional Funds are Required to Complete Construction of the
Refinery."
FEEDSTOCK FINANCING ARRANGEMENTS AND PROCESSING AGREEMENTS
During periods of limited operations, TARC 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
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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.
PRICE MANAGEMENT ACTIVITIES
In order to mitigate the commodity price risks associated with the
refining business, TARC previously entered, and TransContinental 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 TransContinental's debt instruments. If
TransContinental 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 the refinery's work-in-process inventory.
CRUDE OIL AND FEEDSTOCK SUPPLY
TransContinental has no crude oil reserves and is not engaged in the
exploration for crude oil. TransContinental plans to obtain all its crude oil
requirements from unaffiliated sources. Although TransContinental 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. TransContinental 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 TransContinental. 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. TransContinental has four ship docks and a barge dock
on the Mississippi River. TransContinental's title to and continued use of these
facilities is subject to the rights of the government and public use.
TransContinental'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, TransContinental 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 TransContinental to
receive large quantities of foreign crude oil. This pipeline also provides
access to Louisiana and other domestic crudes.
PRODUCT DISTRIBUTION
TransContinental currently has no long-term sales contracts. Major
market areas for TransContinental'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. TransContinental's refined products will be transported
by pipeline, rail tanker, ocean-going vessel and tank truck. TransContinental'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.
TransContinental 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. TransContinental's barge and ship docks
provide access to the Mississippi River and the intracoastal waterway.
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TANK STORAGE ACQUISITION
On September 9, 1997, TARC acquired tank storage facilities and
property located adjacent to the 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. TransContinental has
integrated 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.
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
TransContinental maintains insurance in accordance with customary
industry practices to cover some, but not all, risks. TransContinental currently
maintains property insurance for the refinery in an amount and with deductibles
that management believes will allow TransContinental to survive damage to the
refinery. TransContinental plans to increase insurance coverage amounts from
time to time as it completes certain portions of the Capital Improvement
Program.
SEASONALITY
TransContinental's operations are subject to significant fluctuations
in seasonal demand. In TransContinental's markets, demand for gasoline is
typically higher during the spring and early summer. 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 TransContinental may cause the
cost of crude oil purchased by TransContinental and the price of refined
products sold by TransContinental 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 TransContinental's earnings
and cash flow.
COMPETITION
The industry in which TransContinental operates is highly competitive.
TransContinental 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 TransContinental to withstand volatile
industry conditions, including shortages or excesses of crude oil or refined
products or intense price competition. The principal competitive factors
affecting TransContinental'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.
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EMPLOYEES
As of October 31, 1998, TARC had approximately 570 employees.
TransContinental 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 TransContinental'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
TransContinental as required to implement a portion of 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
TransContinental 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 TransContinental may be up to $2
million per year. As of October 31, 1998, Southeast Contractors was providing
approximately 690 construction workers to TARC. Additionally, Shaw Constructors,
Inc. and other subcontractors were providing approximately 800 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 has been, and TransContinental is, subject to
federal, state and local laws, regulations and ordinances ("Pollution Control
Laws"), which regulate activities such as discharges to air and water and the
handling and disposal of solid and hazardous wastes. Such laws may require
substantial capital expenditures to ensure compliance and impose material civil
and criminal penalties and other sanctions for failure to comply. In general,
during the process of construction and start-up of the refinery, TARC has sought
to comply with Pollution Control Laws, including cooperating, as appropriate,
with regulatory authorities in an effort to ensure compliance and mitigate the
risk of enforcement action. TARC is not aware of any pending or threatened
enforcement action that is likely to have a material adverse effect on its
future financial position, results of operations or cash flow. The Company has
made environmental compliance and permitting issues an integral part of the
refinery's start-up plans and has budgeted for such capital expenditures in the
Capital Improvement Program. There can be no assurance, however, that
TransContinental will not incur material capital expenditures in excess of the
amounts currently budgeted. In addition, Pollution Control Laws that may be
enacted in the future, as well as enforcement of existing Pollution Control
Laws, may require TransContinental to make material additional capital
expenditures in order to comply with such laws and regulations or result in
liabilities that could have a material adverse effect on TransContinental's
future financial position, results of operations or cash flow.
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 the
refinery's operations. As a result, TARC believes that such matters will not
have a material adverse effect on TransContinental's future financial position,
results of operations or cash flow.
Requirements Under the Federal Clean Air Act.
Permitting: The federal Clean Air Act requires certain owners or
operators of facilities with air emissions to obtain permits before beginning
construction or modification of their facilities. Under Title V of the Clean Air
Act, states are required to implement an operating permit program that codifies
all federally enforceable limitations that are applicable to a particular
source. The Environmental Protection Agency (the "EPA") has approved Louisiana's
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operating permit program. The operating permit is necessary for TransContinental
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's initial Title V
permit application under the Clean Air Act was deemed administratively complete.
As the construction of the refinery has progressed, however, TARC has revised
the design and operation of the refinery. As a result, TARC has reviewed its
permit application and determined that there may have been changes in the
configuration, start-up and potential emissions of certain of its air sources,
including the tank storage and terminaling facility. Consequently, in early
1998, TARC submitted a modified Title V permit application based on the
developments since the permit application was originally submitted.
TransContinental is in the process of evaluating and discussing with the
Louisiana Department of Environmental Quality (the "LDEQ") how the changes to
its permit application may affect its anticipated Title V permit. As a result,
there can be no assurances the application will be approved as submitted or that
additional expenditures required pursuant to such operating permit will not have
a material adverse effect on TransContinental's financial position, results of
operations or cash flow.
In a related matter, TARC has obtained a permit from the LDEQ under the
federal prevention of significant deterioration program. Pursuant to that
program, and as a result of the modifications to its Clean Air Act permit
application, the LDEQ recently informed TARC that it will be required to conduct
certain modeling of air emissions and additional review of new or modified
sources. The refinery may be required to modify its plans for refinery
construction or operations as a result of such modeling results, review or other
information submitted in connection with the revised Clean Air Act permit
application. Such modifications may result in material additional capital or
operating expenditures or lost revenue. In addition, the necessary Clean Air Act
permits may not be received by TransContinental in time for the start-up of
Phase II. In that event, TransContinental may not be able to run certain
equipment at maximum capacity until such permits are received.
Benzene Waste NESHAPS: 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. TransContinental 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 TransContinental'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.
Hazardous Organic NESHAPS: In addition, in 1995 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, and subsequently has amended such regulations. These regulations
set Maximum Achievable Control Technology ("MACT") standards for petroleum
refineries. 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 TransContinental'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.
Reformulated Gasoline Program: 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
TransContinental. 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 likely will 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
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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, including 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
denied TARC's initial request for an individual baseline adjustment and other
regulatory relief. TARC recently submitted a revised petition. TransContinental
anticipates that it will continue to pursue regulatory relief with the EPA.
However, regulatory relief may not be granted. Any action taken by the EPA may
have a material adverse effect on TransContinental's future financial position,
results of operations or cash flow.
Requirements Under the Federal Clean Water Act. The federal Clean Water
Act regulates the discharge of industrial wastewater and stormwater into waters
of the United States through the use of discharge permits. The EPA has delegated
the federal pollution discharge permit program in Louisiana to the LDEQ. TARC's
pollution discharge permit expired in 1992; however, TARC submitted a permit
renewal application to the LDEQ before the expiration date, which allowed TARC
to continue to operate under the old permit beyond its original expiration date.
Since then, TARC has identified engineering, design and process changes to its
wastewater discharges and treatment system that are not currently reflected in
its permit application. TARC has informed the LDEQ that it will be submitting an
amended permit application to reflect these changes in the near future. The LDEQ
may include more stringent discharge limitations in the new permit or request
certain changes to processes at the refinery that may require additional
expenditures that could have a material adverse effect on TransContinental's
financial position, results of operations or cash flow.
Cleanup Matters. The refinery 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 and govern the use, storage, handling and
disposal of such substances. The refinery's operations generate, and in the past
have generated, hazardous substances. Over the past several years, TARC was
engaged in environmental cleanup or remedial work relating to or arising out of
operations or activities at the refinery. In addition, TARC was 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. A
follow up assessment was commenced in March 1996. 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. The LDEQ requested additional information and
TARC submitted such information in January 1998. 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 TransContinental's financial position,
results of operations or cash flow. However, because the work plans have not yet
been approved, the LDEQ or the EPA may require additional remediation or
investigation.
TARC has been identified as a potentially responsible party 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. It has been alleged that TARC, or
its predecessors, sent hazardous substances in the past to these sites. 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). Past
and present owners and
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operators of a site, as well as generators and transporters of wastes to a site
from which hazardous substances are released, may be considered potentially
responsible for the costs of investigating and cleaning up such releases, among
other damages. 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
potentially responsible parties for a cleanup, the costs of cleanup typically
are allocated according to a volumetric or other standard among the 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. With respect to the
remaining two sites, TARC's liability for each such matter has not been
determined. TARC anticipates that it may incur costs related to the cleanup at
each such site (and possibly including additional costs arising in connection
with any recovery or other actions brought pursuant or relating to such
matters). TARC believes that its or TransContinental's ultimate environmental
liabilities will not be significant. This determination is based in part on
review of the data available to TARC regarding the basis of TARC's alleged
liability at each site. Depending on the circumstances of the particular
Superfund site, other factors are analyzed, 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 responsible parties
(without giving effect to the ability of any other responsible parties to
contribute to or pay for any liabilities incurred) and the range of likely
cleanup costs at each such site. However, it is not possible at this time to
determine the ultimate environmental liabilities, if any, that may arise from
the matters discussed above.
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 indicated soil and groundwater contamination in several areas
on the property. As a result, the former owner submitted to the LDEQ plans for
the remediation of significant indicated contamination in such areas. TARC has
analyzed these investigations and has carried out further Phase II environmental
assessments to verify their results. TransContinental is expected 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. TARC 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, the funds set aside in the escrow account may not be
sufficient to pay all required remediation costs. As of October 31, 1998, TARC
had recognized a liability of $3.1 million for this contingency.
TEC and TARC have indemnified TCR Holding, TransContinental and the
Purchasers with respect to certain representations and warranties made in the
Securities Purchase Agreement and Asset Transfer Agreements executed in
connection with the Transaction, including representations and warranties
regarding environmental compliance.
OTHER GOVERNMENTAL REGULATIONS
TransContinental 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,
TransContinental must conduct extensive Process Safety Management and Hazardous
Operations reviews prior to placing units into service. TransContinental has
budgeted funds in the Capital Improvement Program to comply with all of these
requirements.
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PROPERTIES
TransContinental owns the approximately 457-acre site on which the
refinery and tank storage facility are located. TransContinental also owns
approximately 500 acres of wetlands adjacent to the refinery site. TARC and
TransContinental lease office space in Houston, Texas from TransTexas.
TITLE INSURANCE
TARC has obtained a lender's title insurance policy in the amount of
$350 million for the benefit of the trustee under the New Notes Indenture ("New
Notes 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 insurer and its reinsurers at the time of the claim and any defenses
that the title insurer and its reinsurers may have. The title insurance policy
does not insure TARC at all, and does not insure the New Notes Indenture Trustee
for defects, liens, encumbrances, adverse claims or other matter listed as
exceptions in the policy, or if not so listed, known to TARC that affect the
validity or priority 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 the New Notes 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 New Notes.
LEGAL PROCEEDINGS
EEOC. On September 30, 1997, the 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 Contractors pursuant to Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C. ss. 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. If TARC
or Southeast Contractors is found liable for violations of Title VII based on
the matters asserted in the Determination, there can be no assurance that such
liability would not have a material adverse effect. TransContinental will
provide to TARC an indemnity with respect to this matter. Such indemnity is
limited, however, and there can be no assurance that such indemnity will be
adequate to cover all potential liability.
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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. On October 2, 1998, plaintiff's motion for class certification
was denied. TARC and TransContinental intend to defend this claim vigorously.
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. Based on the amount of Shell's settlement and TARC's
evaluation of its potential share of this liability, TARC anticipates that its
liability, if any, in this case will not be material. TARC and TransContinental
intend to defend this case vigorously.
GENERAL. The litigation matters discussed above amount to significant
potential liability which, if adjudicated in a manner adverse to TARC or
TransContinental 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 TransContinental's financial position, results of
operations or cash flow.
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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 75
Donald B. Henderson Director 49
Ed Donahue Vice President, Secretary and Director 48
R. Glenn McGinnis President and Chief Executive Officer 50
Ronald W. Lewis Vice President and Chief Operating Officer 61
Gary L. Karr Vice President of Refining 50
John R. Stanley, Jr. Vice President of Administration 37
</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 and a director 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 and is Vice Chairman and a director
of TransContinental. 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 October 1998, Mr. Henderson was convicted of
intoxication assault in connection with a traffic accident. Mr. Henderson has
appealed this conviction.
Edwin B. Donahue has served as Vice President and Secretary of TARC
since February 1997 and as a director of TARC since January 1999. Mr. Donahue
also serves as Vice President, Chief Financial Officer and Secretary of
TransTexas and TEC, as Vice President and Secretary of TransAmerican and as Vice
President and a director of TransContinental. Mr. Donahue has been employed in
various positions with TransAmerican for over 21 years.
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<PAGE> 62
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. Mr. McGinnis is also the President and Chief Executive
Officer of TransContinental. 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 also serves as Vice President and Chief Operating
Officer of TransContinental. 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.
Gary L. Karr has been Vice President of Refining of TARC since January
1994 and served as Refinery Manager for approximately eight years prior thereto.
Mr. Karr also serves as Vice President of Refining of TransContinental. Mr. Karr
has been with TransAmerican or a subsidiary of TransAmerican since 1971 in
various positions.
John R. Stanley, Jr. has been Vice President of Administration of TARC
since October 1995. Mr. Stanley also serves as Vice President of Administration
of TransContinental. 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.
In January 1999, in connection with the Transaction, the TARC Board was
expanded to four members and Ed Donahue was appointed to fill the vacancy. The
TARC Board may be further expanded to five members with the fifth member to be
appointed by the TCW Affiliates. It is anticipated that Messrs. Lewis, Karr and
Stanley, Jr. will resign as officers of TARC.
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
Prior to the Transaction, each director, other than John R. Stanley,
received 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"):
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<PAGE> 63
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 --
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.
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<PAGE> 64
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, has provided 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 $1.0 million per year,
in the aggregate, from TARC and TCR Holding.
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 1999, 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 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.
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<PAGE> 65
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 October 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 (as defined), 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.
In July 1996, TARC executed a promissory note to TransAmerican for up
to $25 million, with an interest 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, with an interest rate of 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% with a maturity date of July 31,
2002. All amounts outstanding under the TransAmerican Notes were repaid on June
13, 1997.
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<PAGE> 66
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.
Southeast Contractors, a subsidiary of TransAmerican, provided
construction personnel to TARC in connection with the Capital Improvement
Program and will continue to provide such personnel to TransContinental under a
new contract. These construction workers are temporary employees, and the number
and composition of the workforce will vary throughout the Capital Improvement
Program. Southeast Contractors charged 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 three and nine months ended October 31, 1998 and
1997 were $19.8 million, $101.8 million, $17.1 million and $26.8 million,
respectively, of which $9.7 million and $2.0 million were payable at October 31,
1998 and January 31, 1998, respectively.
On June 13, 1997, the Company entered into a services agreement with
TransAmerican, TransTexas and TEC. Under the 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. During the three and nine months ended October 31,
1998, TARC recognized $1.5 million and $4.6 million in service agreement
expense, of which $2.1 million and $3.4 million was payable to TransTexas and
TransAmerican, respectively, as of October 31, 1998. In connection with the
Transaction, TransTexas will enter into an Amended and Restated Services
Agreement with TransAmerican and its affiliates (other than TCR Holding and
TransContinental) and a separate Amended and Restated Services Agreement with
TCR Holding and TransContinental.
TARC and TransTexas are parties to a Gas Purchase Agreement pursuant to
which TARC may purchase 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. There were no natural gas sales from TransTexas to TARC
during the nine months ended October 31, 1998.
TEC has made advances to TARC pursuant to a $50 million promissory note
due June 14, 2002 which bears interest in an amount equal to a fixed semi-annual
interest payment of $2.8 million, prorated based on the average outstanding
balance of TARC's note to TEC and the average outstanding balance of all notes
between TransTexas and TEC. The note is secured by a security interest in all of
the common stock of TransContinental owned by TCR Holding. Interest payments are
due and payable each June 15 and December 15. As of October 31, 1998, the
outstanding balance of the note was $47.0 million. At December 15, 1998, the
outstanding balance of the Note was $49.5 million. In connection with the
Transaction, $6.0 million was repaid to TEC and the obligations under the note
were assumed by TCR Holding.
During the nine months ended October 31, 1998, TEC contributed $12.8
million to TARC for general corporate purposes and $116.1 million for use in the
Capital Improvement Program from funds available in a disbursement account
intended for such purposes.
Subsequent to October 31, 1998, TARC entered into an intercompany
bridge loan with TEC for an aggregate principal amount of $25 million. In
connection with the Transaction, approximately $25 million of the proceeds of
the New Notes was used to repay the intercompany bridge loan.
In April 1998, TARC distributed all of its shares of TransTexas common
stock to TEC, resulting in a charge to additional paid-in capital of $1.8
million.
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 have been reimbursed to TEC.
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In connection with the Transaction, TARC, TEC and TransContinental
entered into an expense reimbursement agreement pursuant to which certain of
TARC's and TEC's expenses related to compliance with existing debt instruments
will be reimbursed by TransContinental.
Blackburn & Henderson, a law firm of which Mr. Henderson, a director of
TARC and TEC, is a partner, has provided legal and other services to
TransAmerican and its affiliates for which it 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 TNGC's subsidiaries to
pay to TNGC 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 TNGC 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
TNGC 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 TNGC (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
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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.
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 Exchange Date will be $960.1086.
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 of 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
Exchange Date will be $960.1086. 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
one year.
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, any state thereof or the District of Columbia (other than a
partnership that is treated as a Foreign Person under any applicable Treasury
Regulation), (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 United States persons who have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury Regulations, certain trusts in
existence on August 20, 1996 and treated as United States persons prior to such
date that elect to continue to be treated as United States persons will not be a
Foreign Person. 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
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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
or 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
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
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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.
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 taken the position,
based in part upon independent legal advice, that it was not required to 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 $270 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 7%) 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.
PERSONAL HOLDING COMPANY
TEC may become a "personal holding company" (as defined in the Internal
Revenue Code) as a result of the Transaction. A corporation which is a personal
holding company ("PHC") is subject to a federal PHC tax of 39.6% on its PHC
taxable income. This tax is in addition to any regular federal income taxes that
might be imposed on such income. If TEC were a PHC for its tax year ending July
31, 1999, a significant risk exists that TEC would incur substantial PHC tax
liability. Although the determination depends in part on future events and facts
and upon interpretations of matters of law, TEC believes that the TNGC
Consolidated Group will not be subject to PHC taxes for its tax year ending July
31, 1999. If TCR Holding exercises its right to redeem the TCR Voting Preferred
Stock during the tax year ending July 31, 2000, although TEC and TARC will
likely be PHCs, TEC believes that neither TEC, TARC nor any member of the TNGC
Consolidated Group, would incur any PHC tax liability based on projected
earnings of any member of the TNGC Consolidated Group and such member's
offsetting deductions. If TCR Holding redeems the TCR Voting Preferred Stock
from TARC subsequent to July 31, 2000, TARC could incur a significant PHC tax
for the year of the redemption, although TEC expects that the likelihood of such
PHC tax being imposed is remote due to the significant incentives that TCR
Holding will have to redeem the TCR Voting Preferred Stock on or before July 31,
2000.
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DESCRIPTION OF EXISTING INDEBTEDNESS
TARC NOTES
As of October 31, 1998, TARC had outstanding approximately $7.8 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 Mortgage Notes,
the "TARC Notes"). Interest on the TARC Notes is payable, semi-annually on
February 15 and August 15. On April 17, 1998, the TARC Notes were defeased to a
final redemption date of February 15, 1999, and the collateral securing
repayment of 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
secured by a security interest in the TCR Voting Preferred Stock owned by TARC.
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 October 31, 1998 was $836.4 million.
TARC WORKING CAPITAL NOTE
TEC has made advances to TARC pursuant to a $50 million promissory note
due June 14, 2002 which bears interest in an amount equal to a fixed semi-annual
interest payment of $2.8 million, prorated based on the average outstanding
balance of TARC's note to TEC and the average outstanding balance of all notes
between TransTexas and TEC. The note is secured by a security interest in all of
the common stock of TransContinental owned by TCR Holding. Interest payments are
due and payable each June 15 and December 15. As of October 31, 1998, the
outstanding balance of the note was $47.0 million. At December 15, 1998, the
outstanding balance of the Note was $49.5 million. In connection with the
Transaction, $6.0 million was repaid to TEC and the obligations under the note
were assumed by TCR Holding.
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. The Acquisition
Note was assigned to and assumed by TransContinental as part of the Transaction.
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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, as amended, 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, as amended (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 December 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 June 30, 1999 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 Notes in cash
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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 $48 million was 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
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subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person 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 October 31, 1998, on a pro forma basis giving effect to the
Transaction, the Company had outstanding Senior Debt of approximately $844.3
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
contains 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.
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"Accounts Receivable Subsidiary" means a subsidiary of TEC, the
Company, TCR Holding or TransContinental designated as an Accounts Receivable
Subsidiary for the purpose of financing the accounts receivable of
TransContinental.
"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 the Company (or, after the Transaction Closing Date,
TransContinental).
"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.
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"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 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 owned by the Company
before the Transaction Closing Date as more specifically defined in the security
documents relating to the TEC Notes, together with all personal property of
TransContinental 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.
"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) (x) with respect to any Person other than TCR Holding, 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 or (y) with respect
to TCR Holding, the aggregate amount of dividends and other distributions on the
Capital Stock of TransContinental received by TCR Holding from TransContinental
during the Reference Period to (ii) the aggregate Consolidated Fixed Charges 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
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of such Reference Period, (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 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
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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 by TEC with the approval of TCR Holding, which approval
shall not be unreasonably withheld.
"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 or representing the balance deferred
and unpaid of the purchase price of any property acquired by such Person or
services received by such Person (other than long-term services or supply
contracts which required minimum periodic payments), (c) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks or Swap
Obligations, (d) for the payment of money relating to a Capitalized Lease
Obligation, (e) the Attributable Debt associated with any Sale and Leaseback
Transaction or (f) Dollar-Denominated Production Payments that TransTexas or any
of its Subsidiaries elect to treat as Debt (excluding all other Permitted
Production Payment Obligations); (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. Notwithstanding anything to the contrary contained herein, for purposes
of Section 4.11, notes issued in satisfaction of the interest obligation on up
to $150 million principal amount of 15% Senior Secured Notes due 2003 issued
pursuant to the Transaction in accordance with the terms thereof shall not
constitute Debt except for purposes of the third to last and second to last
paragraphs of Section 4.11.
"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.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its 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.
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"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 the Company and TransTexas, as in effect on the Issue Date
and as amended from time to time, provided that any such amendment is approved
by the Board of Directors of each of the parties thereto.
"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, 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.
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"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. ss. 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.
"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
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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.
"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.
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"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 any of the
TARC Entities or any of the TCR Holding Entities in any of the TCR Holding
Entities or in TransContinental and Investments by any of the TCR Holding
Entities in any of the TARC Entities; (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 the Company in an aggregate amount not in
excess of $10,000,000 (net of returns on investment) plus the assets comprising
the CATOFIN(R) Unit owned by the Company 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 Subsidiary Notes by any of the TARC Entities or any of the
TCR Holding Entities in amounts not to exceed the greater of $20 million or 20%
of the TransContinental 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 Section 4.11; (xiv) deposits
permitted by the definition of "Permitted Liens" or any extension, renewal, or
replacement 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, (xvii) Investments in
money market mutual or similar funds having assets in excess of $100,000,000 and
(xviii) the purchase or other acquisition by TARC, TCR Holding and their
Subsidiaries of TEC Notes or by TCR Holding and its Subsidiaries of Notes or
Series C/D Notes.
"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; (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,
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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 Series A/B 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 operations of such
New Property, (ii) the principal amount of the Debt secured by such Lien does
not exceed 100% of such costs 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
and Liens encumbering contract rights under 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 the Company or
TCR Holding; (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 Section
4.11; 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 secure Senior Debt; (v) Liens
on any property of the Company or its Subsidiaries (or any agreement to grant
such Liens) securing the Series C/D Notes or the Notes, (w) Liens on any
Property owned by TransContinental and (x) Liens on any Property owned by the
Company or TCR Holding to secure Debt permitted by clause (s) of Section 4.11.
"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.
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"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 TEC
certifying that the Phase I Performance Test has been completed.
"Phase I Performance Test" means for a period of at least 72
uninterrupted hours, TransContinental's refinery has sustained (i) an average
feedstock throughput level of at least 150,000 barrels per day and (ii) 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 TEC
certifying that for a period of at least 72 uninterrupted hours,
TransContinental's refinery has sustained (i) an average feedstock throughput
level of at least 180,000 barrels per day and (ii) 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 60%, 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 the Company (or, after the Transaction Closing Date, TransContinental), which
describe and show the proposed expansion and modification of the Company's (or,
after the Transaction Closing Date, TransContinental's) refinery as amended from
time to time with the consent of the Construction Supervisor and (b) a budget
prepared by or on behalf of the Company (or, after the Transaction Closing Date,
TransContinental) as amended from time to time with the consent of the
Construction Supervisor.
"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.
"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
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Exchange or quoted in the National Association of Securities Dealers Automated
Quotation System (National Market System).
"Purchasers" means the initial purchasers from TARC pursuant to the
Transaction of voting stock of TCR Holding and their transferees and Affiliates
(in each case other than the Company and its Subsidiaries).
"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.
"Refinery Assets" means substantially all of the assets of TARC
immediately prior to the Transaction Closing Date.
"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 (other than a Purchaser or
TransContinental and any of its Subsidiaries) 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 TCR Holding or from any of
the Company's Subsidiaries or to TCR Holding by any of TCR Holding's
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 Services Agreement, the Expense Reimbursement Agreement, the
Office Leases, the Transfer Agreement 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
clauses (o), (s) and (u) 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 the Company or TCR Holding of shares of
Capital Stock of the Company, TCR Holding, TransContinental, 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, with respect to the issuer, not to exceed 7% of
the aggregate number of shares of voting stock held by nonaffiliates of the
issuer measured from the date of the first such purchase, (viii) distributions
of common stock of TransTexas to TEC, (ix) any dividend or other distribution on
the Capital Stock of any Subsidiary of the Company, (x) any purchase of Capital
Stock of TCR Holding by the Company, (xi) any purchase of Capital Stock of
TransContinental by TCR Holding, (xii) any dividend or payment on shares of
Capital Stock of TCR Holding the proceeds of the issuance of which are used to
purchase TEC Notes and (xiii) the TCR Holding Participating Preferred Stock
Redemption.
"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 or, with respect to its
use in the definition of "Permitted Liens" only, TCR Holding, including, without
limitation, the TARC Discount Notes, the TARC Mortgage Notes, the TARC Working
Capital Loan 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 Series C/D Notes and the Notes, (ii) Debt of
the Company to any Subsidiary of the Company or to any Unrestricted Subsidiary
of the Company (other than to facilitate the purchase of the common stock
purchase warrants of TARC), or (iii) any amounts payable or other Debt
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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.
"Series C/D Notes" means the Company's 16% Senior Subordinated Notes
issued pursuant to the Indenture dated March 16, 1998 between the Company and
First Union National Bank, as trustee, providing for the issuance of such notes,
as such may be amended, supplemented and restated from time to time.
"Services Agreement" means the Services Agreement among TNGC Holdings
and its Subsidiaries, as in effect on the Issue Date and as amended from time to
time, provided that any such amendment is approved by the Board of Directors of
each of the parties thereto that will be bound by such amendment.
"Stated Maturity," when used with respect to any Note, means June 30,
2003.
"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 Indenture provisions "Subsidiary Guarantees," 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; provided,
further, however, that TCR Holding and its subsidiaries other than
TransContinental shall be "Subsidiaries" of TARC (except for purposes of Section
4.16) and TransContinental shall not be a "Subsidiary" of any 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.
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"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 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
the Company to TEC in the fully accreted principal amount of $920,000,000 upon
substantially the terms described in the Registration Statement on Form S-4, as
amended, of TEC under the heading "Description of Existing Indebtedness -- TARC
Intercompany Loan" and as amended from time to time in accordance with its
terms.
"TARC Intercompany Loan Amendment" means the second amendment to the
TARC Intercompany Loan Agreement upon substantially the terms described in the
form attached to the Indenture as Exhibit C.
"TARC Mortgage Notes" means the Guaranteed First Mortgage Notes due
2002 issued by TARC and guaranteed by TEC.
"TARC Working Capital Loan" means a loan by TEC to TARC of up to $50
million, which will be assumed by TCR Holding pursuant to the Transaction.
"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 approved by the
Board of Directors of each of the parties thereto that will be bound by such
amendment.
"TCR Holding" means TCR Holding Corporation, a Delaware corporation, to
which the Refinery Assets will be transferred by TARC pursuant to the
Transaction.
"TCR Holding Entities" means TCR Holding and each of its Subsidiaries.
"TCR Holding Participating Preferred Stock" means the participating
preferred stock of TCR Holding issued pursuant to the Transaction.
"TCR Holding Participating Preferred Stock Redemption" means the
redemption by TCR Holding of the TCR Holding Participating Preferred Stock in
exchange for (i) debt securities of TCR Holding with an aggregate principal
amount equal to the liquidation preference of the TCR Holding Participating
Preferred Stock, with a maturity date of June 1, 2002 and bearing interest at a
rate sufficient to pay interest on the TARC Intercompany Loan, the Notes and the
Series C/D Notes and (ii) common stock of TCR Holding equal to 30.6% of the
equity interest in TCR Holding and 41% of the voting power of TCR Holding's
capital stock.
"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.
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"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.
"Transaction" means a series of related transactions (as more fully
described in the Company's Consent Solicitation Statement dated October 5, 1998,
as amended, pursuant to which consents were solicited from the Holders to
amendments to the Indenture to facilitate the Transaction, which description is
incorporated herein by reference) pursuant to which, among other things, (i) the
Lien on the TARC Collateral (as defined in the TEC Indenture) is released, (ii)
TARC transfers to TCR Holding the Refinery Assets in exchange for (x) all of the
capital stock of TCR Holding and (y) the assumption by TCR Holding of certain
debt and other obligations of TARC, (iii) TCR Holding transfers to
TransContinental the Refinery Assets in exchange for all of the common stock of
TransContinental and TransContinental assumes the debt and other obligations of
TARC assumed by TCR Holding other than the TARC Working Capital Loan and (iv)
certain Purchasers purchase (x) debt securities issued by TARC, (y) equity
securities issued by TransContinental and (z) TCR Holding Capital Stock from
TARC for aggregate gross proceeds of approximately $151 million.
"Transaction Closing Date" means the date the Refinery Assets are
transferred by TARC to TCR Holding and by TCR Holding to TransContinental
pursuant to the Transaction.
"TransAmerican" means TransAmerican Natural Gas Corporation, a Texas
corporation.
"TransContinental" means TransContinental Refining Corporation, a
Delaware corporation, to which the Refinery Assets will be transferred by TCR
Holding pursuant to the Transaction and, for purposes of Section 4.11 hereof,
its Subsidiaries.
"TransContinental 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 TransContinental 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 TransContinental 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, TransContinental may utilize, to
the extent reasonable, the most recent available information for purposes of
calculating the TransContinental Borrowing Base.
"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, TransContinental or
any of the Subsidiaries of the Company 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
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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 (x) 20% of the Company's
Consolidated EBITDA since the Phase II Completion Date in the case of the
Company, (y) 20% of TCR Holding's Consolidated EBITDA since the Phase II
Completion Date in the case of TCR Holding or (z) 20% of TransContinental's
Consolidated EBITDA since the Phase II Completion Date in the case of
TransContinental plus in the case of clause (ii) of this definition of
Unrestricted Non-Recourse Debt, Restricted Payments permitted to be made
pursuant to Section 4.3.
"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), 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.
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COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock. The Indenture provides that the Company shall not,
and shall not permit TransContinental or any of the Company's 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 in an aggregate amount not to
exceed $200 million in proceeds to the Company less the aggregate amount of
proceeds to the Company pursuant to Debt incurred under clause (p) below; (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 of 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 Section 4.14 hereof; (c) Subordinated Debt of the Company
solely to any wholly owned Subsidiary of the Company, Debt of TCR Holding solely
to TransContinental or any wholly owned Subsidiary of TCR Holding, Debt or
Disqualified Capital Stock of TCR Holding to TARC, Debt of any wholly owned
Subsidiary of the Company solely to the Company or to any wholly owned
Subsidiary of the Company or Debt of TransContinental or any wholly owned
Subsidiary of TCR Holding solely to TCR Holding or to any wholly owned
Subsidiary of TCR Holding; (d) Debt of TransContinental outstanding at any time
in an aggregate principal amount not to exceed the greater of (x) $100 million
or (y) the TransContinental Borrowing Base, less, in each case, the amount of
any Debt of an Accounts Receivable Subsidiary (other than Debt owed to the
Company or TransContinental); (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) or (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 incurred pursuant to 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; (j) Unrestricted Non-Recourse Debt; (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 the
Company or any of its Subsidiaries or TransContinental owed to TEC which is
loaned pursuant to terms of the fourth paragraph of either of the covenants
contained 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) each of the Company, its Subsidiaries and TransContinental may
Incur Debt as an extension, renewal, replacement, or refunding of any item of
the Debt permitted to be Incurred by clauses (b), (p), (r), (v), (w) or (x)
hereof, or this clause (o) (each such item of Debt is referred to as
"Refinancing Debt"), provided, that (1) the maximum principal amount of each
item of Refinancing Debt (or, if such 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 item of Debt being extended, renewed, replaced, or refunded plus Refinancing
Fees or (y) if such item of 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 and (2) each item of Refinancing Debt
shall rank with respect to the Notes to an extent no less favorable in respect
thereof to the Holders than the related Debt being refinanced; (p) Pari Passu
Debt or Subordinated Debt of the Company or TCR Holding with initial net
proceeds to the Company not in excess of $25 million in the aggregate less the
aggregate amount of proceeds to the Company pursuant to Debt incurred under
clause (a) above after the Issue Date; (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 TransContinental Incurred in
connection with the acquisition, construction or improvement of a CATOFIN(R)
Unit not in excess of 20% of TransContinental'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, (s) Debt of TARC, TCR Holding or TransContinental with an
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aggregate principal amount outstanding at any one time of up to $225 million,
(t) Debt of TARC (other than Debt secured by Storage Assets in the initial
aggregate principal amount of $36 million) that is assumed by TCR Holding or
TransContinental in connection with the Transaction, (u) Debt of TCR Holding
with an aggregate principal amount outstanding at any one time not in excess of
$200 million, (v) Debt of TCR Holding (other than Debt incurred pursuant to
clause (s) above) that is assumed by TransContinental in connection with the
Transaction, (w) Disqualified Capital Stock of TCR Holding or TransContinental
or unsecured Debt of TCR Holding or unsecured or secured Debt of
TransContinental, (1) the proceeds of which are used to repurchase TEC Notes or
(2) that is exchanged for TEC Notes, (x) Debt or Disqualified Capital Stock of
TCR Holding or TransContinental that is used to refinance or replace the TARC
Intercompany Loan and (y) Debt of the Company, TCR Holding or TransContinental
owed to TEC that does not in the aggregate exceed $50 million principal amount
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) the
Company, TCR Holding and TransContinental may Incur Senior Debt and the Company,
TCR Holding and TransContinental 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 the entity incurring such Debt for
the Reference Period is greater than 2.25 to 1, and (b) the Company, TCR Holding
and TransContinental 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 the entity incurring such Debt 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 the Company, TCR Holding or TransContinental, 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 the
Company, TCR Holding or TransContinental or one of their 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 the Company, TCR Holding or TransContinental, respectively, or
one of their respective 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.
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
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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 or TCR Holding 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
(i) in the case of Restricted Payments by the Company: (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 (ii) in the case of Restricted Payments by
TCR Holding: (a) TCR Holding'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 TCR Holding 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 Transaction Closing Date and on or prior to the date of such
Restricted Payment, would not exceed an amount equal to the sum of (w)
$1,000,000, plus (x) 50% of Adjusted Consolidated Net Income of TCR Holding
accrued for the period (taken as one accounting period) from the first full
fiscal quarter that commenced after the Transaction Closing Date to and
including the fiscal quarter ended immediately prior to the date of each
calculation for which financial statements are available (or, if TCR Holding'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 TCR Holding
from the issuance or sale (other than to a Subsidiary of TCR Holding) of its
Qualified Capital Stock from and after the Transaction Closing 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 TCR Holding's Adjusted
Consolidated Net Income during such period; 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 TransContinental
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
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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; 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 (other than
TCR Holding) to, directly or indirectly, create, assume, or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary of the
Company (other than TCR Holding) 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 property,
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), (xi), (xii), (xvi) and (xviii) of the definition of
"Permitted Investment"), 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) 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 between Wholly Owned
Subsidiaries of the Company; (D) transactions pursuant to the Services
Agreement, the Tax Allocation Agreement, the Gas Purchase Agreement, and the
Expense Reimbursement Agreement, in each case including amendments thereto that
are approved by the Board of Directors of each of the parties thereto that will
be bound by such amendments, and the
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Transfer Agreement, the TARC Intercompany Loan and related security documents,
and the Registration Rights Agreement; (E) the lease of office space to the
Company or an Affiliate of 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 $5,000,000 in any fiscal year of the Company or any Subsidiary and
which has been approved by a majority of the Company's Independent 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 the Company and TCR Holding
which are permitted to be Incurred pursuant to the terms of Section 4.11; (H)
the amounts payable by the TEC and its Subsidiaries to Southeast Contractors for
employee services provided to the Company or TransContinental 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 $2,000,000 per year in the aggregate; (I)
the Company and its Subsidiaries may pay a management fee to TransAmerican in an
amount not to exceed $2,500,000 per year; (J) transactions effected pursuant to
the Transaction, including without limitation (i) the execution, delivery and
performance of the TARC Intercompany Loan Amendment, the TCR Holding Pledge
Agreement, an amendment of the Services Agreement and a Securities Purchase
Agreement among TARC, TCR Holding, TransContinental, TEC and certain of the
Purchasers providing for the sale to such Purchasers of Capital Stock of TCR
Holding owned by TARC pursuant to the Transaction, (ii) the transfer of the
Refinery Assets by TARC to TCR Holding and, as consideration therefor, the
issuance by TCR Holding to TARC of Capital Stock of TCR Holding, the assumption
by TCR Holding of certain debt and obligations of TARC (including Debt of TARC
to the Purchasers and certain others), and (iii) the transfer of the Refinery
Assets by TCR Holding to TransContinental and, as consideration therefor, the
issuance by TransContinental of its common stock to TCR Holding and the
assumption by TransContinental of certain debt and obligations of TCR Holding;
(K) the delivery of TEC Notes to TEC in satisfaction of the TARC Intercompany
Loan; (L) the issuance and sale of the TCR Holding Participating Preferred
Stock; (M) the TCR Holding Participating Preferred Stock Redemption; and (N)
transactions between or among TCR Holding or TransContinental and any of their
respective Related Persons, provided such transaction is approved by the Board
of Directors of each of the parties thereto.
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), (G), (J), (K), (L), (M) or (N) of the first paragraph of this
covenant) with an aggregate value in excess of $5,000,000, 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 (x) fair and reasonable to the Company or such Subsidiary, as the
case may be, and (y) 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 (ii) 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), (G), (J), (K), (L), (M) or (N) of the
first paragraph of this covenant) with an aggregate value in excess of
$10,000,000, 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 nationally recognized investment
banking or accounting 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 Liens. The Indenture provides that the Company shall not
and shall 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 Permitted Liens. Notwithstanding
anything in the Indenture to the contrary, (i) TARC may not, directly or
indirectly, Incur or suffer to exist any Lien on the Capital Stock of TCR
Holding owned
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by it (other than a Lien to secure the TARC Intercompany Loan), (ii) TCR Holding
may incur a Lien on Capital Stock of TransContinental to secure the TARC Working
Capital Loan and (iii) TransContinental shall not be bound by this covenant. 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.
Limitation on Line of Business. The Company shall not 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 or incidental thereto. The Company shall not permit
TransContinental directly or indirectly to engage to any substantial extent in
any line or lines of business activity other than a Related Business or such
other business activities as are reasonably related or incidental 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.
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.
Notwithstanding anything contained in this covenant to the contrary,
the provisions of this covenant shall not apply to the transfer by TARC to TCR
Holding of the Refinery Assets as part of the Transaction, nor shall they apply
to the transfer to TransContinental by TCR Holding of the Refinery Assets as
part of the Transaction and the provisions of clauses (a)(2), (a)(3) and (a)(5)
shall not apply to a merger of TARC with or into TEC.
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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 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, any of its Subsidiaries or
TransContinental 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
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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) 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 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
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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.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the
Guarantors and the Trustee to enter into supplemental or restated indentures 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 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, (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, as amended, pursuant to which the Company agreed to file with
the Commission 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. 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
January 24, 1999, 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.
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
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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. A Registration Default occurred on July 28, 1998 caused by the Company's
failure to cause the Exchange Offer Registration Statement to be declared
effective by the Commission by July 28, 1998. On December 30, 1998, the
Company paid liquidated damages of approximately $320,000 in connection with
such Registration Default. TARC will pay approximately $120,000 in
additional liquidated damages on June 30, 1999.
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
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purchaser of each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
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
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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.
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
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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 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.
101
<PAGE> 107
INDEPENDENT ACCOUNTANTS
The 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 PricewaterhouseCoopers LLP (formerly 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.
102
<PAGE> 108
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants ......................................................................... F-2
Balance Sheet as of January 31, 1998 and 1997.............................................................. F-3
Statement of Operations for the years ended January 31, 1998, 1997 and 1996, the six months
ended January 31, 1996 and 1995, and the year ended July 31, 1995..................................... F-4
Statement of Stockholder's Equity for the years ended January 31, 1998 and 1997, the six months
ended January 31, 1996 and the year ended July 31, 1995............................................... F-5
Statement of Cash Flows for the years ended January 31, 1998, 1997 and 1996, the six months
ended January 31, 1996 and 1995, and the year ended July 31, 1995..................................... F-6
Notes to Financial Statements ............................................................................. F-7
Condensed Balance Sheet as of October 31, 1998 and January 31, 1998 (unaudited)............................ F-31
Condensed Statement of Operations for the three and nine months ended October 31, 1998
and 1997 (unaudited).................................................................................. F-32
Condensed Statement of Cash Flows for the nine months ended October 31, 1998 and 1997 (unaudited).......... F-33
Notes to Unaudited Condensed Financial Statements.......................................................... F-34
Pro Forma Condensed Balance Sheet as of October 31, 1998 (unaudited)....................................... PF-1
Pro Forma Condensed Statement of Operations for the nine months ended October 31, 1998 (unaudited)......... PF-2
Pro Forma Condensed Statement of Operations for the year ended January 31, 1998 (unaudited)................ PF-3
Notes to Unaudited Pro Forma Condensed Financial Statements................................................ PF-4
</TABLE>
F-1
<PAGE> 109
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> 110
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
Inventories .................................................................. -- --
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
Note payable ................................................................. -- --
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 15) ........................................ -- --
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> 111
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> 112
TRANSAMERICAN REFINING CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK 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> 113
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> 114
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> 115
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> 116
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> 117
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
Year Ended January 31, January 31, 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> 118
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> 119
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 MSCCSM
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 $30 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 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, 1997, TARC
F-12
<PAGE> 120
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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> 121
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 benefitted.
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> 122
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 purchased by TEC
F-15
<PAGE> 123
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 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> 124
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 market 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 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> 125
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 TARCIntercompany
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.
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. As of January 31, 1998, the amount payable
pursuant to the advances was approximately $15 million.
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.
TNGC Holdings Corporation, TransAmerican, and its existing
subsidiaries, including TARC, TEC and TransTexas, entered into 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 TNGC's
subsidiaries to pay to TNGC 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 TNGC the
F-18
<PAGE> 126
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 TNGC (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
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TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JULY 31,
--------------------------------- --------------------- --------
1998 1997 1996 1996 1995 1995
-------- ------- -------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax expense (benefit) at
the statutory rate ............................. $(39,203) $ 3,292 $(23,540) $(9,125) $(8,103) $(22,518)
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' 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>
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TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
YEAR ENDED JANUARY 31, JANUARY 31, 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
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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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.
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
F-22
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TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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
Year Ended January 31, January 31, 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
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
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TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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.
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.
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
F-24
<PAGE> 132
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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.
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
F-25
<PAGE> 133
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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 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.
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).
F-26
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TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
In 1991, the EPA performed a facility assessment at the refinery
pursuant to the Federal Resource Conservation and Recovery Act ("RCRA"). The EPA
performed a follow up assessment in March 1996, but has not yet issued a report
of its investigations. In July 1996, the EPA and 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.
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.
F-27
<PAGE> 135
TRANSAMERICAN REFINING CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 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.
F-28
<PAGE> 136
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-29
<PAGE> 137
TRANSAMERICAN REFINING CORPORATION
CONDENSED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 626 $ 10,021
Restricted cash held in disbursement accounts ................. -- 71,563
Cash restricted for interest .................................. 36,688 32,823
Investments held in trust ..................................... 9,010 9,114
Accounts receivable ........................................... 3,403 870
Inventories ................................................... 30,649 --
Other ......................................................... 2,304 1,346
----------- -----------
Total current assets .................................... 82,680 125,737
----------- -----------
Property and equipment ............................................. 1,417,885 939,780
Less accumulated depreciation and amortization ..................... 32,271 25,257
----------- -----------
Net property and equipment .............................. 1,385,614 914,523
----------- -----------
Restricted cash held in disbursement accounts ...................... -- 60,166
Cash restricted for interest ....................................... -- 16,348
Investments held in trust .......................................... -- 8,591
Receivable from affiliates ......................................... 1,931 1,655
Other assets, net .................................................. 44,566 68,429
----------- -----------
$ 1,514,791 $ 1,195,449
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable .............................................. $ 95,343 $ 32,022
Payable to affiliates ......................................... 13,758 6,976
Accrued liabilities ........................................... 19,971 9,528
Note payable .................................................. 7,000 --
Current maturities of long-term debt .......................... 7,896 6,710
----------- -----------
Total current liabilities ............................... 143,968 55,236
----------- -----------
Payable to affiliates .............................................. 5,556 3,825
Long-term debt, less current maturities ............................ 228,069 210,666
Notes payable to affiliate ......................................... 883,394 760,266
Other .............................................................. 4,708 5,048
Commitments and contingencies (Note 7) ............................. -- --
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 .................................... 569,435 439,566
Accumulated deficit ........................................... (320,639) (279,458)
----------- -----------
Total stockholder's equity .............................. 249,096 160,408
----------- -----------
$ 1,514,791 $ 1,195,449
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-30
<PAGE> 138
TRANSAMERICAN REFINING CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales ....................................... $ 58,326 $ -- $ 66,701 $ --
Other ............................................... 722 571 3,999 571
--------- --------- --------- ---------
Total revenues ................................ 59,048 571 70,700 571
--------- --------- --------- ---------
Costs and expenses:
Costs of products sold .............................. 59,002 -- 66,821 --
Processing arrangements, net ........................ (2,073) 125 (3,899) (3,112)
Operations and maintenance .......................... 8,269 2,789 14,062 10,651
Depreciation and amortization ....................... 4,214 1,984 8,679 5,409
General and administrative .......................... 5,198 6,024 17,152 11,029
Taxes other than income taxes ....................... 1,269 903 3,588 2,709
Loss on purchase commitments ........................ -- -- -- 4,759
--------- --------- --------- ---------
Total costs and expenses ...................... 75,879 11,825 106,403 31,445
--------- --------- --------- ---------
Operating loss ................................ (16,831) (11,254) (35,703) (30,874)
--------- --------- --------- ---------
Other income (expense):
Interest income ..................................... 682 2,002 4,435 3,045
Interest expense, net ............................... (2,761) (7,103) (10,785) (13,870)
Equity in income of TransTexas
before extraordinary item ........................ -- 20 (229) 45,185
Other ............................................... (279) 374 (279) 1,109
--------- --------- --------- ---------
Total other income (expense) .................. (2,358) (4,707) (6,858) 35,469
--------- --------- --------- ---------
Income (loss) before extraordinary items and
cumulative effect of change in accounting
principle ..................................... (19,189) (15,961) (42,561) 4,595
Extraordinary items:
Equity in extraordinary item of TransTexas .......... -- 10 -- (10,158)
Loss on the early extinguishment of debt ............ -- -- (1,294) (84,422)
Cumulative effect of a change in
accounting principle ................................ -- -- 2,674 --
--------- --------- --------- ---------
Net loss ...................................... $ (19,189) $ (15,951) $ (41,181) $ (89,985)
========= ========= ========= =========
Basic and diluted net loss per share:
Income (loss) before extraordinary items
and cumulative effect of a change
in accounting principle ....................... $ (0.64) $ (0.53) $ (1.42) $ 0.15
Extraordinary items ................................. -- -- (0.04) (3.15)
Cumulative effect of a change in
accounting principle .......................... -- -- 0.09 --
--------- --------- --------- ---------
$ (0.64) $ (0.53) $ (1.37) $ (3.00)
========= ========= ========= =========
Weighted average number of common
shares outstanding for basic and diluted
net loss per share (in thousands) ................... 30,000 30,000 30,000 30,000
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
F-31
<PAGE> 139
TRANSAMERICAN REFINING CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating activities:
Net loss ...................................................................... $ (41,181) $ (89,985)
Adjustments to reconcile net loss to net cash used by operating activities:
Loss on early extinguishment of debt ..................................... 1,294 84,422
Cumulative effect of a change in accounting principle .................... (2,674) --
Depreciation and amortization ............................................ 8,679 5,409
Amortization of discount on long-term debt ............................... 6,180 10,935
Amortization of debt issue costs ......................................... 293 894
Equity in net (earnings) loss of TransTexas .............................. 229 (35,027)
Changes in assets and liabilities:
Accounts receivable ................................................... (2,533) (924)
Inventories ........................................................... (30,649) --
Other current assets .................................................. (958) (691)
Accounts payable ...................................................... 35,089 (727)
Payable to affiliates, net ............................................ 8,237 5,190
Accrued liabilities ................................................... 13,294 (6,274)
Other assets .......................................................... (82) (2,669)
Other liabilities ..................................................... (69) 3,100
---------- ----------
Net cash used by operating activities ............................. (4,851) (26,347)
---------- ----------
Investing activities:
Capital expenditures .......................................................... (342,289) (189,952)
Proceeds from the sale of TransTexas stock .................................... -- 136,158
Increase in investments held in trust ......................................... (419) --
Decrease in investments held in trust ......................................... 9,114 --
---------- ----------
Net cash used by investing activities .............................. (333,594) (53,794)
---------- ----------
Financing activities:
Issuance of long-term debt .................................................... 26,625 36,000
Issuance of note payable ...................................................... 7,000 --
Issuance of note payable to affiliate ......................................... -- 721,649
Retirement of long-term debt .................................................. (7,792) (468,333)
Increase in debt proceeds held in disbursement accounts ....................... -- (317,451)
Withdrawals from disbursement accounts ........................................ 131,729 161,720
Disbursements of cash restricted for interest ................................. 12,483 --
Repayment of advances and notes payable to affiliate .......................... (6,146) (66,000)
Capital contributions from parent ............................................. 128,891 6,000
Advances from affiliate ....................................................... 38,104 15,026
Debt issue costs .............................................................. (1,396) (7,892)
Principal payments on capital lease obligations ............................... (448) (1,109)
---------- ----------
Net cash provided by financing activities ................... 329,050 79,610
---------- ----------
Decrease in cash and cash equivalents ....................... (9,395) (531)
Beginning cash and cash equivalents .............................................. 10,021 613
---------- ----------
Ending cash and cash equivalents ................................................. $ 626 $ 82
========== ==========
Noncash financing and investing activities:
Accounts payable for property and equipment ................................... $ 52,446 $ 13,064
Accrued interest on long-term debt capitalized in property and equipment ...... 86,466 51,284
Debt issue costs allocated from affiliate ..................................... -- 24,893
Purchase of warrants by affiliate ............................................. -- 32,942
</TABLE>
See accompanying notes to condensed financial statements.
F-32
<PAGE> 140
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
1. GENERAL
In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made that are necessary to fairly state the
financial position of TransAmerican Refining Corporation ("TARC" or the
"Company") as of October 31, 1998 and the results of its operations and cash
flows for the interim periods ended October 31, 1998 and 1997. The results of
operations for interim periods should not be regarded as necessarily indicative
of results that may be expected for the entire year. The financial information
presented herein should be read in conjunction with the financial statements and
notes included in TARC's annual report on Form 10-K for the fiscal year ended
January 31, 1998. Unless otherwise noted, all capitalized terms used herein but
not otherwise defined are as defined in TARC's annual report on Form 10-K for
the fiscal year ended January 31, 1998. TARC is a subsidiary of TransAmerican
Energy Corporation ("TEC"), which is a wholly owned subsidiary of TransAmerican
Natural Gas Corporation ("TransAmerican"). TransTexas Gas Corporation
("TransTexas") is a subsidiary of TEC.
Prior to December 15, 1998, TARC owned a refinery located in the Gulf
Coast region along the Mississippi River approximately 20 miles from New
Orleans, Louisiana. Its business strategy was to modify, expand and reactivate
its refinery and to maximize its refining margins by converting low cost, heavy
sour, crude oils into light petroleum products including gasoline and heating
oil. As a result of the Transaction (as defined in Note 2 below), TARC no longer
owns the refinery but maintains a non-controlling equity interest in TCR Holding
Corporation, a Delaware corporation ("TCR Holding"). TCR Holding owns a
controlling equity interest in TransContinental Refining Corporation, a Delaware
corporation ("TransContinental"), the corporation that owns the refinery.
TransContinental intends to operate the existing units and to complete the
construction of additional units. Accordingly, for periods subsequent to
December 15, 1998 the financial statements of TARC will no longer reflect
ownership and operation of the refinery but will reflect the results of TARC's
investment in TCR Holding using the equity method.
EARNINGS PER SHARE
Weighted average shares outstanding exclude potential common shares of
approximately 3.0 million, 3.0 million, 0.1 million and 3.8 million for the
three and nine months ended October 31, 1998 and 1997, respectively.
RECENTLY ISSUED PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The Company
will adopt SFAS 133 effective February 1, 2000. TARC is uncertain as to the
impact on its financial statements of the adoption of SFAS 133.
2. REFINERY CONSTRUCTION AND DISPOSITION
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 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"), which had a budget of $427 million. 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,
which
F-33
<PAGE> 141
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
commenced operation in September 1998. 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 allow for a significant increase in the
refinery's capacity to produce gasoline.
Since June 1997, TARC experienced unanticipated cost increases
resulting primarily from (i) acceleration of the construction schedule for the
Capital Improvement Program, resulting in extensive overtime charges, low
overall labor productivity and increased costs to expedite deliveries of
equipment, (ii) inadequate engineering quality on the Hydrodesulfurization Unit,
resulting in substantial rework and lower labor productivity, (iii) extensive
required refurbishment of used equipment, (iv) inadequate contractor estimates
and cost controls, work planning and reporting and (v) increased competition for
labor requiring higher labor compensation. Because of these factors, TARC has
incurred costs substantially in excess of the June 1997 budget for the Capital
Improvement Program. At October 31, 1998, TARC reviewed its current estimates of
refining margins and costs of expansion and modification of the refinery, and
believes that future undiscounted cash flows will be sufficient to recover the
cost of the refinery over its estimated useful life. 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. Based upon TARC's
revised budget as of October 31, 1998, estimated expenditures from June 13, 1997
to completion of the Capital Improvement Program are anticipated to exceed the
original budget by approximately $285 million. At October 31, 1998, TARC had
spent an aggregate of $501.3 million on the Capital Improvement Program and had
incurred accounts payable and other short-term obligations relating thereto in
the aggregate amount of $59.0 million. TARC estimates that, as of October 31,
1998, construction costs of $138 million to $159 million (in addition to
accounts payable) were required to complete the Capital Improvement Program,
depending upon the extent to which an unallocated contingency amount of $21
million is used. The Capital Improvement Program, including the budget, is
subject to change by TransContinental.
The following Transaction was consummated on December 15, 1998 in order
to provide additional capital for construction of the refinery.
The Transaction included the following:
(i) The issuance by TARC of $150 million aggregate principal
amount of its 15% Senior Secured Notes due 2003 (the "Notes")
to certain purchasers (the "New Lenders");
(ii) the transfer by TARC to TCR Holding of substantially all of
its assets (the "Refinery Assets") in exchange for (x) all of
the capital stock of TCR Holding, which includes the
following,
(a) Class A Participating Preferred Stock, Series A and
Class A Participating Preferred Stock, Series B (the
"TCR Voting Preferred Stock"),
(b) Class B junior non-voting participating preferred
stock ("Class B Preferred Stock"), Class C junior
non-voting participating preferred stock ("Class C
Preferred Stock") and Class D junior non-voting
participating preferred stock ("Class D Preferred
Stock," and, together with the Class B Preferred
Stock and the Class C Preferred Stock, the "TCR
Repurchasable Preferred Stock"),
(c) Class E junior non-voting participating preferred
stock (the "TCR Non-Repurchasable Preferred Stock"
and, together with the TCR Repurchasable Preferred
Stock, the "TCR Non-Voting Preferred Stock"),
(d) Class A Voting Common Stock, Series A (the "TCR
Voting Common Stock"), and
F-34
<PAGE> 142
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(e) Class B Non-Voting Common Stock (the "TCR Non-Voting
Common Stock" and, together with the TCR Voting
Common Stock, the "TCR Common Stock"),
and (y) the assumption of debt and other specified obligations
of TARC (including the Notes, approximately $43.5 million in
post-Transaction intercompany debt to TEC (the "TARC Working
Capital Loan") and approximately $36 million in debt secured
by certain tank storage and terminaling facilities (the "Tank
Storage Debt")) other than (a) the debt issued pursuant to the
Loan Agreement dated as of June 13, 1997, as amended, between
TEC and TARC (the "TARC Intercompany Loan"), (b) TARC's Series
A 16% Senior Subordinated Notes due 2003 (the "Series A
Notes"), (c) TARC's Series C 16% Senior Subordinated Notes due
2003 (the "Series C Notes" and, together with the Series A
Notes, the "TARC Subordinated Notes") and (d) certain accounts
payable and other liabilities;
(iii) the transfer by TCR Holding to TransContinental of the
Refinery Assets as a capital contribution and the assumption
by TransContinental of the debt and other obligations of TARC
assumed by TCR Holding on the date of such transfer (including
the Notes and the Tank Storage Debt) other than the TARC
Working Capital Loan;
(iv) the acquisition from TARC by the New Lenders, certain holders
(the "TEC Holders") of TEC's 11 1/2% Senior Secured Notes due
2002 and 13% Senior Secured Discount Notes due 2003 (the "TEC
Notes") and certain of the holders of the TARC Subordinated
Notes (together with the TEC Holders, the "Purchasers") of TCR
Repurchasable Preferred Stock representing 30.0% of the
Residual Equity of TCR Holding and TCR Non-Repurchasable
Preferred Stock representing 29.6% of the Residual Equity of
TCR Holding. Affiliates of Trust Company of the West (the "TCW
Affiliates") received the TCR Non-Voting Common Stock
representing 5% of the Residual Equity of TCR Holding. Certain
of the Purchasers acquired the TCR Voting Common Stock
representing 0.4% of the Residual Equity and 59% of the voting
power of TCR Holding. TARC retained the TCR Voting Preferred
Stock representing 30.6% of the Residual Equity and 41% of the
voting power of TCR Holding. The remaining 4.4% of the
Residual Equity of TCR Holding, in the form of TCR
Non-Repurchasable Preferred Stock, initially will be retained
by TARC and is expected to be offered to holders of certain of
TARC's outstanding common stock purchase warrants (the "TARC
Warrants") in exchange for such TARC Warrants. "Residual
Equity" means the interest of the indicated stockholders in
the assets of TCR Holding upon a liquidation or winding up of
TCR Holding, which interest is subject to the prior payment of
the liquidation preference of the TCR Voting Preferred Stock
and the TCR Non-Voting Preferred Stock;
(v) the grant by TARC of a security interest in the TCR Voting
Preferred Stock to secure the TARC Intercompany Loan and the
collateral assignment of such security interest by TEC to
secure the TEC Notes, the grant by TCR Holding to TEC of a
security interest in the common stock of TransContinental to
secure the TARC Working Capital Loan, the collateral
assignment of such security interest to secure the TEC Notes,
and the provision in the TCR Voting Preferred Stock of the
right of holders of such stock in certain circumstances to
require TCR Holding to sell common stock of TransContinental
held by TCR Holding, or any assets received on exchange or
sale therefor, and apply the proceeds to reduce the
liquidation preference and certain accrued but unpaid dividend
amounts on the TCR Voting Preferred Stock; and
(vi) the purchase from TransContinental by the New Lenders of
TransContinental's 6% Participating Preferred Stock
("TransContinental Preferred Stock").
F-35
<PAGE> 143
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
As part of the Transaction, (i) the holders of TCR Holding capital
stock entered into a stockholders agreement providing for the election of two
nominees of TARC, two nominees of the TCW Affiliates and one nominee of an
affiliate of one of the Purchasers as directors of TCR Holding and the election
of two nominees of TARC and two nominees of the TCW Affiliates as directors of
TransContinental, (ii) the stockholders of TransContinental entered into an
agreement providing for the election of one nominee of the holders of the
TransContinental Preferred Stock (which initially shall be a nominee of an
affiliate of one of the Purchasers) and four nominees of TCR Holding as
directors of TransContinental, (iii) the holders of the TransContinental
Preferred Stock would have the right to elect a majority of the directors of
TransContinental if either of such stockholders agreements has been breached, is
not being complied with or has been adjudicated to be unenforceable, (iv)
TransAmerican, as the sole stockholder of TEC, and TEC, as the sole stockholder
of TARC, would agree to elect a representative of the TCW Affiliates as a
director of TEC and of TARC, respectively, (v) TCR Holding and TransContinental
would enter into registration rights agreements or otherwise provide for certain
registration rights relating to their respective securities being issued to the
New Lenders in the Transaction, (vi) TCR Holding and TransContinental,
respectively, would enter into services agreements with TransTexas providing for
certain services to be rendered to TCR Holding and TransContinental by
TransTexas and (vii) TEC or one of its affiliates will be granted certain rights
to repurchase shares of the TCR Repurchasable Preferred Stock (which would
become voting stock upon exercise of such rights), which could result in TEC and
its affiliates owning a majority of the capital stock of TCR Holding and being
entitled to elect a majority of the directors of TCR Holding and, indirectly,
TransContinental. Such repurchase rights would only be exercisable after the
Notes, the TEC Notes and the TARC Subordinated Notes have been fully repaid and
certain financial performance tests have been met. In addition, TARC would have
the right to repurchase the shares of TCR Non-Voting Common Stock issued to the
TCW Affiliates pursuant to the Transaction for $5 million at any time during the
two-year period commencing with the Issue Date (as defined); provided, however,
that if the TCR Voting Preferred Stock remains outstanding after July 31, 1999,
TARC will have the option to repurchase such stock at a nominal cost.
All of the above-described transactions, as well as other agreements
and transactions necessary to facilitate or related to the foregoing, are
referred to herein as the "Transaction."
As a result of the Transaction, subsequent to December 15, 1998, TARC
no longer owns the Refinery Assets. TARC's investment in TCR Holding consists of
TCR Voting Preferred Stock representing 30.6% of the Residual Equity and 41% of
the voting power of TCR Holding. The TCR Voting Preferred Stock will be recorded
at a carrying value equal to the carrying value of the TARC Intercompany Loan
and the TARC Subordinated Notes at December 15, 1998. The Residual Equity
interest will be recorded based on the remaining carry over basis in the net
assets transferred after considering the effects of the sale of the majority
interest. TARC also expects to report a loss on disposition of the stock of TCR
Holding of approximately $121 million in the fourth quarter of fiscal 1999.
3. LIQUIDITY
TARC will be dependent primarily on dividends from TCR Holding in order
to meet its debt service and working capital requirements. TCR Holding is a
holding company with no business operations. TCR Holding's only sources of
liquidity will be dividends on the TransContinental common stock that it holds
and proceeds from the sale of such TransContinental common stock.
TransContinental will have no obligation to make dividends or other
distributions to TCR Holding. TransContinental will be able to pay dividends
only if it has sufficient cash from operations. In addition, TransContinental's
ability to make dividends or other distributions on its common stock is
restricted by the Indenture governing the Notes and the terms of the
TransContinental Preferred Stock. TransContinental's ability to make dividends
or other distributions under the Indenture will be dependent, in part, on a
determination by the independent engineer who will be appointed in connection
with the Transaction to monitor construction of the refinery on behalf of the
holders of the Notes (the "Independent Engineer") of whether the following funds
are sufficient to complete the Capital Improvement Program: funds in the
Disbursement Account (as
F-36
<PAGE> 144
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
defined), plus 50% of Projected Net Operating Cash Flow (as defined) for the
90-day period commencing on the date a dividend is declared, plus an amount
equal to the portion of the proceeds of the Port Commission Bond Financing (as
defined) held by the entity serving as collateral agent or in a similar capacity
with respect to such financing plus, without duplication, cash on hand that has
been approved by TransContinental's Board of Directors to be escrowed in a
segregated account and allocated only for the purpose of completion of the
Capital Improvement Program. If any capital project is added to the Capital
Improvement Program that cannot be fully funded out of cash flow (as defined)
during the relevant 90-day period plus such other sources of funds, the
Indenture will prohibit payment of dividends to TCR Holding. The Capital
Improvement Program may be amended at any time by TransContinental's Board of
Directors. Dividends or distributions might not be made by TransContinental on
its common stock, or, if made, might not be sufficient to satisfy TCR Holding's
obligations, including under the terms of the TCR Voting Preferred Stock and the
TARC Working Capital Loan. Therefore, TARC may not be able to satisfy its debt
service obligations. As a result, TARC's investment in TCR Holding, including
the carrying value of the TCR Voting Preferred Stock, could be impaired or TARC
may not be able to meet its obligations as they become due. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
4. ACCOUNTING CHANGES
Effective May 1, 1998, TARC changed its method of accounting for
turnaround costs. Turnaround costs consist of required periodic maintenance on
major processing units including the shutdown and restart of the units.
Previously, TARC estimated the costs of a scheduled turnaround and ratably
accrued these costs over the period until the next scheduled turnaround. To
provide for better matching of turnaround costs with revenues and to be more
consistent with industry standards, TARC changed its method of accounting for
turnaround costs to one that results in the amortization of incurred costs on a
straight-line basis over the period of time estimated to lapse until the next
scheduled turnaround. The cumulative effect of this accounting change through
January 31, 1998, was a decrease in net loss for the nine months ended October
31, 1998 of $2.7 million or $0.09 per common share. Excluding the cumulative
effect, the change decreased net loss for the three and nine months ended
October 31, 1998 by $0.2 million and $0.6 million, respectively, or $0.01 and
$0.02, respectively, per common share.
Pro forma amounts assuming the change in accounting principle is
applied retroactively are as follows: (in thousands of dollars except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary items ......... $ (19,189) $ (15,770) $ (42,370) $ 5,168
Basic and diluted net income (loss) per share
before extraordinary items:
As reported ................................. (0.64) (0.53) (1.42) 0.15
Pro forma ................................... (0.64) (0.53) (1.42) 0.17
Net loss ......................................... (19,189) (15,760) (40,990) (89,412)
Basic and diluted net loss per share:
As reported ................................. (0.64) (0.53) (1.37) (3.00)
Pro forma ................................... (0.64) (0.53) (1.37) (2.98)
</TABLE>
TARC's inventories consist primarily of feedstocks and refined products
and are stated at the lower of cost or market. Effective May 1, 1998, the
Company changed its method of inventory pricing for feedstocks and refined
products from the average cost method to the first-in-first-out method.
Historically, sales of refined products have been
F-37
<PAGE> 145
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
limited and sporadic due to intermittent operations of the refinery during
periods of construction and expansion. Upon completion of the Capital
Improvement Program, the refinery will be capable of producing multiple refined
products from a variety of feedstocks. The Company believes the change from the
average cost method to the first-in-first-out method will provide a more
efficient means of valuing inventory and a better matching of revenues and
costs. Furthermore, the Company believes the first-in-first-out method is more
widely used than the average cost method in the refining industry and desires to
present more comparative information. There was no cumulative effect of this
accounting change for any period presented.
5. 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 was placed into
accounts (collectively, the "TARC Disbursement Account") to be held and invested
by the Disbursement Agent until disbursed. In addition, proceeds to TEC and TARC
of approximately $201 million from the TransTexas share repurchase program were
deposited in the TARC Disbursement Account. On December 30, 1997, TARC deposited
$119 million of the net proceeds from the issuance of its Series A Senior
Subordinated Notes 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. TEC disbursements for TARC
expenditures are treated as capital contributions.
The Disbursement Agent makes 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. Disbursements from
the TARC Disbursement Account are generally restricted to reimbursement for
expenses incurred in connection with the Capital Improvement Program.
Disbursements for general and administrative expenses ($1.5 million monthly)
and, upon Mechanical Completion of certain units, for feedstock purchases (up to
a maximum aggregate of $50 million) are also permitted. 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 October
31, 1998, substantially all of the amounts deposited in the TARC Disbursement
Account had been expended for the designated purposes.
6. INVENTORIES
The major components of inventories are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
<S> <C> <C>
Refinery feedstocks and blendstocks................... $ 11,885 $ --
Intermediate and refined products..................... 18,764 --
----------- -----------
$ 30,649 $ --
=========== ===========
</TABLE>
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<PAGE> 146
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
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. ss.
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. 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 flows. TransContinental will provide to TARC an indemnity
with respect to this matter. Such indemnity is limited, however, and there can
be no assurance that such indemnity will be adequate to cover all potential
liability.
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. On October 2, 1998, plaintiff's motion for class certification
was denied. TARC and TransContinental intend 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.
Based on the amount of Shell's settlement and TARC's evaluation of its potential
share of this liability, TARC anticipates that its liability, if any, in this
case will not be material. TARC and TransContinental intend to 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.
F-39
<PAGE> 147
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
ENVIRONMENTAL MATTERS
COMPLIANCE MATTERS. TARC has been, and TransContinental will be, subject
to federal, state and local laws, regulations and ordinances ("Pollution Control
Laws"), which regulate activities such as discharges to air and water and the
handling and disposal of solid and hazardous wastes. Such laws may require
substantial capital expenditures to ensure compliance and impose material civil
and criminal penalties and other sanctions for failure to comply. In general,
during the process of construction and start-up of the refinery, TARC has sought
to comply with Pollution Control Laws, including cooperating, as appropriate,
with regulatory authorities in an effort to ensure compliance and mitigate the
risk of enforcement action. TARC is not aware of any pending or threatened
enforcement action that it likely to have a material adverse effect on its
future financial position, results of operations or cash flow. TARC 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. There can be no assurance, however, that
TransContinental will not incur material capital expenditures in excess of the
amounts currently budgeted. In addition, Pollution Control Laws that may be
enacted in the future, as well as enforcement of existing Pollution Control
Laws, may require TransContinental to make material additional capital
expenditures in order to comply with such laws and regulations or result in
liabilities that could have a material adverse effect on TransContinental's
future financial position, results of operations or cash flow.
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 TransContinental's future financial position, results
of operations or cash flow.
REQUIREMENTS UNDER THE FEDERAL CLEAN AIR ACT
PERMITTING. The federal Clean Air Act requires certain owners or
operators of facilities with air emissions to obtain permits before beginning
construction or modification of their facilities. Under Title V of the Clean Air
Act, states are required to implement an operating permit program that codifies
all federally enforceable limitations that are applicable to a particular
source. The Environmental Protection Agency (the "EPA") has approved Louisiana's
operating permit program. The operating permit is necessary for TransContinental
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's initial Title V
permit application under the Clean Air Act was deemed administratively complete.
As the construction of the refinery has progressed, however, TARC has revised
the design and operation of the refinery. As a result, TARC reviewed its permit
application and determined that there may have been changes in the
configuration, start-up and potential emissions of certain of its air sources,
including the tank storage and terminaling facility. Consequently, in early
1998, TARC submitted a modified Title V permit application based on the
developments since the permit application was originally submitted. TARC is in
the process of evaluating and discussing with the Louisiana Department of
Environmental Quality (the "LDEQ") how the changes to its permit application may
affect its anticipated Title V permit. As a result, there can be no assurances
the application will be approved as submitted or that additional expenditures
required pursuant to such operating permit will not have a material adverse
effect on TransContinental's financial position, results of operations or cash
flow.
In a related matter, TARC has obtained a permit from the LDEQ under the
federal prevention of significant deterioration program. Pursuant to that
program, and as a result of the modifications to its Clean Air Act permit
application, the LDEQ recently informed TARC that it will be required to conduct
certain modeling of air emissions
F-40
<PAGE> 148
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
and additional review of new or modified sources. The refinery may be required
to modify its plans for refinery construction or operations as a result of such
modeling results, review or other information submitted in connection with the
revised Clean Air Act permit application. Such modifications may result in
material additional capital or operating expenditures or lost revenue. In
addition, the necessary Clean Air Act permits may not be received by
TransContinental in time for the start-up of Phase II. In that event,
TransContinental may not be able to run certain equipment at maximum capacity
until such permits are received.
BENZENE WASTE NESHAPS. 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. TransContinental 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 TransContinental'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.
HAZARDOUS ORGANIC NESHAPS. In addition, in 1995, 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, and subsequently has amended such regulations. These regulations
set Maximum Achievable Control Technology ("MACT") standards for petroleum
refineries. 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 TransContinental'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.
REFORMULATED GASOLINE PROGRAM. 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
TransContinental. 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 likely will increase in the future after the
NAAQS are implemented. Conventional gasoline may be used in al 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, including 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
denied TARC's initial request for an individual baseline adjustment and other
regulatory relief. TARC recently submitted a revised petition. TransContinental
anticipates that it will continue to pursue
F-41
<PAGE> 149
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
regulatory relief with the EPA. However, regulatory relief may not be granted.
Any action taken by the EPA may have a material adverse effect on
TransContinental's future financial position, results of operations or cash
flow.
REQUIREMENTS UNDER THE FEDERAL CLEAN WATER ACT. The federal Clean Water
Act regulates the discharge of industrial wastewater and stormwater into waters
of the United States through the use of discharge permits. The EPA has delegated
the federal pollution discharge permit program in Louisiana to the LDEQ. TARC's
pollution discharge permit expired in 1992; however, TARC submitted a permit
renewal application to the LDEQ before the expiration date, which allowed TARC
to continue to operate under the old permit beyond its original expiration date.
Since then, TARC has identified engineering, design and process changes to its
wastewater discharges and treatment system that are not currently reflected in
its permit application. TARC has informed the LDEQ that it will be submitting an
amended permit application to reflect these changes in the near future. The LDEQ
may include more stringent discharge limitation in the new permit or request
certain changes to processes at the refinery that may require additional
expenditures that could have a material adverse effect on TransContinental's
financial position, results of operations or cash flow.
CLEANUP MATTERS. The refinery 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 and govern the use, storage, handling and
disposal of such substances. The refinery's operations generate, and in the past
have generated, hazardous substances. 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. A
follow up assessment was commenced in March 1996. In July 1996, the EPA and the
LDEQ agreed that the LDEQ was 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. The LDEQ requested additional information and
TARC submitted such information in January 1998. 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 TransContinental's financial position,
results of operations or cash flow. However, because the work plans have not yet
been approved, the LDEQ or the EPA may require additional remediation or
investigation.
TARC has been identified as a potentially responsible party 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. It has been alleged that TARC, or
its predecessors, sent hazardous substances in the past to these sites. 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). 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,
may be considered potentially responsible for the costs of investigating and
cleaning up such releases, among other damages. 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 potentially responsible parties for a cleanup, the costs of
cleanup typically are allocated according to a volumetric or other standard
among the parties. A number of states have laws similar to Superfund, pursuant
to which cleanup operations, or the costs thereof, also may be imposed.
F-42
<PAGE> 150
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
At one Superfund site, TARC has submitted information to the EPA
indicating that it should have no liability for this matter. With respect to the
remaining two sites, TARC's liability for each such matter has not been
determined. TARC anticipates that it may incur costs related to the cleanup at
each such site (and possibly including additional costs arising in connection
with any recovery or other actions brought pursuant or relating to such
matters). TARC believes that its or TransContinental's ultimate environmental
liabilities will not be significant. This determination is based in part on
review of the data available to TARC regarding the basis of TARC's alleged
liability at each site. Depending on the circumstances of the particular
Superfund site, other factors are analyzed, 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 responsible parties
(without giving effect to the ability of any other responsible parties to
contribute to or pay for any liabilities incurred) and the range of likely
cleanup costs at each such site. However, it is not possible at this time to
determine the ultimate environmental liabilities, if any, that may arise from
the matters discussed above.
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 indicated soil and groundwater contamination in several areas
on the property. As a result, the former owner submitted to the LDEQ plans for
the remediation of 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.
TARC 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, the funds set aside in the escrow account may not be
sufficient to pay all required remediation costs. As of October 31, 1998, TARC
had recognized a liability of $3.1 million for this contingency.
TEC and TARC have indemnified TCR Holding, TransContinental and the
Purchasers with respect to certain representations and warranties made in the
Securities Purchase Agreement and Asset Transfer Agreements executed in
connection with the Transaction, including representations and warranties
regarding environmental compliance.
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 October 31, 1998, TARC had commitments for refinery
construction and maintenance of approximately $48.0 million.
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. During the three and nine months ended
October 31, 1998 and 1997, TARC processed approximately 0.8 million barrels, 1.6
million barrels, 0 barrels and 6.4 million barrels, respectively, pursuant to
the processing agreement. Income (loss) from this processing agreement was $2.1
million, $3.9 million, $3.1 million, $(0.1) million and $3.1 million for the
three and nine months ended October 31, 1998 and 1997, respectively.
F-43
<PAGE> 151
TRANSAMERICAN REFINING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
REGISTRATION RIGHTS AGREEMENT
TARC had an obligation under its Registration Rights Agreement with the
holders of its Senior Subordinated Notes to have its registration statement on
Form S-4 relating to the Exchange Offer for the Senior Subordinated Notes
declared effective by the Securities and Exchange Commission by July 28, 1998.
As a result of its failure to meet its obligation under the Registration Rights
Agreement, TARC had accrued approximately $0.1 million in liquidated damages as
of October 31, 1998. Such amount accrued at a rate of $10,000 per week from July
28, 1998 until November 25, 1998, and thereafter at a rate of $30,000 per week
until such date as the registration statement is declared effective.
8. TRANSACTIONS WITH AFFILIATES
Southeast Contractors, a subsidiary of TransAmerican, has provided
construction personnel to TARC in connection with the Capital Improvement
Program and will continue to provide such personnel to TransContinental under a
new contract. These construction workers are temporary employees, and the number
and composition of the workforce will vary throughout the Capital Improvement
Program. Southeast Contractors charged 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 three and nine months ended October 31, 1998 and
1997 were $19.8 million, $101.8 million, $17.1 million and $26.8 million,
respectively, of which $9.7 million and $2.0 million were payable at October 31,
1998 and January 31, 1998, respectively.
On June 13, 1997, the Company entered into a services agreement with
TransAmerican, TransTexas and TEC. Under the 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. During the three and nine months ended October 31,
1998, TARC recognized $1.5 million and $4.6 million in service agreement
expense, of which $2.1 million and $3.4 million was payable to TransTexas and
TransAmerican, respectively, as of October 31, 1998. In connection with the
Transaction, TransTexas will enter into an Amended and Restated Services
Agreement with TransAmerican and its affiliates (other than TCR Holding and
TransContinental) and a separate Amended and Restated Services Agreement with
TCR Holding and TransContinental.
TEC has made advances to TARC pursuant to a $50 million promissory note
due June 14, 2002 which bears interest in an amount equal to a fixed semi-annual
interest payment of $2.8 million, prorated based on the average outstanding
balance of TARC's note to TEC and the average outstanding balance of all notes
between TransTexas and TEC. Interest payments are due and payable each June 15
and December 15. As of October 31, 1998, the outstanding balance of the note was
$47.0 million. At December 15, 1998, the outstanding balance of the note was
$49.5 million. In connection with the Transaction, $6.0 million was repaid to
TEC and the obligations under the note were assumed by TCR Holding.
During the nine months ended October 31, 1998, TEC contributed $12.8
million to TARC for general corporate purposes and $116.1 million for use in the
Capital Improvement Program from funds available in a disbursement account
intended for such purposes.
Subsequent to October 31, 1998, TARC entered into an intercompany
bridge loan with TEC for an aggregate principal amount of $25 million. In
connection with the Transaction, approximately $25 million of the proceeds of
the Notes was used to repay the intercompany bridge loan.
F-44
<PAGE> 152
TRANSAMERICAN REFINING CORPORATION
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial information of
TARC illustrates the effect of the Transaction. The unaudited pro forma
condensed balance sheets have been prepared assuming that the Transaction was
completed on October 31, 1998. The unaudited pro forma condensed statements of
operations have been prepared assuming that the Transaction was completed on
February 1, 1997.
The unaudited pro forma adjustments and the resulting unaudited pro
forma condensed financial information are based on the assumptions noted in the
footnotes thereto. The unaudited pro forma condensed financial information does
not purport to represent what TARC's results of operations would have been had
the Transaction actually occurred on the dates indicated or the results of
operations for any future date or period.
The allocation of the proceeds of the Transaction is based on
preliminary estimates by the Company of the fair values of the various
securities issued. The Company does not believe that the final estimates will
differ materially from the estimates used in these unaudited pro forma condensed
financial statements.
PF-1
<PAGE> 153
TRANSAMERICAN REFINING CORPORATION
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 626 $ 150,000 (a) $ 1,726
(10,000)(a)
(138,900)(b)
1,100 (c)
(1,100)(d)
Cash restricted for interest ................................. 36,688 (4,680)(b) 32,008
Investments held in trust .................................... 9,010 -- 9,010
Accounts receivable .......................................... 3,403 (3,403)(b) --
Inventories .................................................. 30,649 (30,649)(b) --
Other ........................................................ 2,304 (2,304)(b) --
----------- ----------- -----------
Total current assets .................................... 82,680 (39,936) 42,744
----------- ----------- -----------
Property and equipment .......................................... 1,417,885 (1,417,885)(b) --
Accumulated depreciation and amortization ....................... 32,271 (32,271)(b) --
----------- ----------- -----------
Net property and equipment .............................. 1,385,614 (1,385,614) --
----------- ----------- -----------
Receivables from affiliates ..................................... 1,931 -- 1,931
Other assets, net ............................................... 44,566 188 (g) 35,734
............................................................... 6,500 (a)
............................................................... 1,100 (d)
(16,620)(b)
Investment in subsidiary ........................................ -- 1,226,416 (b) 1,089,060
(1,100)(c)
(166)(c)
(1,100)(c)
(188)(g)
(134,802)(c)
----------- ----------- -----------
$ 1,514,791 $ (345,322) $ 1,169,469
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................................. $ 95,343 $ (93,617)(b) $ 1,726
Payable to affiliates ........................................ 13,758 (9,723)(b) 4,035
Accrued liabilities .......................................... 19,971 (8,839)(b) 11,132
Note payable ................................................. 7,000 (7,000)(b) --
Current maturities of long-term debt ......................... 7,896 -- 7,896
----------- ----------- -----------
Total current liabilities ............................... 143,968 (119,179) 24,789
----------- ----------- -----------
Payable to affiliates ........................................... 5,556 -- 5,556
Long-term debt, less current maturities ......................... 228,069 150,000 (a) 192,069
(1,100)(c)
(184,900)(b)
Notes payable to affiliate ...................................... 883,394 (46,967)(b) 836,427
Other ........................................................... 4,708 (4,708)(b) --
Stockholders' equity:
Common stock ................................................. 300 -- 300
Additional paid-in capital ................................... 569,435 (166)(c) 569,269
Accumulated deficit .......................................... (320,639) (134,802)(c) (458,941)
(3,500)(a)
Total stockholders' equity .............................. 249,096 (138,468) 110,628
----------- ----------- -----------
$ 1,514,791 $ (345,322) $ 1,169,469
=========== =========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
financial statements.
PF-2
<PAGE> 154
TRANSAMERICAN REFINING CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product sales ................................................ $ 66,701 $ (66,701)(e) $ --
Other ........................................................ 3,999 (3,999)(e) --
----------- ----------- -----------
Total revenues ................................... 70,700 (70,700) --
----------- ----------- -----------
Costs and expenses:
Costs of products sold .................................. 66,821 (66,821)(e) --
Processing arrangements, net ............................ (3,899) 3,899 (e) --
Operations and maintenance .............................. 14,062 (14,062)(e) --
Depreciation and amortization ........................... 8,679 (8,679)(e) --
General and administrative .............................. 17,152 (17,152)(e) --
Taxes other than income taxes ........................... 3,588 (3,588)(e) --
----------- ----------- -----------
Total costs and expenses ......................... 106,403 (106,403) --
----------- ----------- -----------
Operating loss ................................... (35,703) 35,703 --
----------- ----------- -----------
Other income (expense):
Interest income .............................................. 4,435 (4,435)(e) --
Interest expense, net ........................................ (10,785) 1,375 (e) (9,410)
Equity in loss of TransTexas before
extraordinary item ......................................... (229) -- (229)
Equity in loss of TCR Holding ................................ -- (10,074)(f) (10,074)
Other ........................................................ (279) 279 (e) --
----------- ----------- -----------
Total other expense .............................. (6,858) (12,855) (19,713)
----------- ----------- -----------
Net loss before extraordinary items and
cumulative effect of a change in
accounting principle ........................... $ (42,561) $ 22,848 $ (19,713)
=========== =========== ===========
Basic and diluted net loss per share ............................ $ (1.42) $ (0.66)
=========== ===========
Weighted average number of common shares
outstanding for basic and diluted net loss per
share (in thousands)........................................... 30,000 30,000
=========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
financial statements.
PF-3
<PAGE> 155
TRANSAMERICAN REFINING CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product sales ................................................ $ -- $ -- $ --
Other ........................................................ 2,828 (2,828)(e) --
----------- ----------- -----------
Total revenues ................................... 2,828 (2,828) --
----------- ----------- -----------
Costs and expenses:
Costs of products sold ....................................... -- -- --
Processing arrangements, net ................................. (1,413) 1,413 (e) --
Operations and maintenance ................................... 11,834 (11,834)(e) --
Depreciation and amortization ................................ 8,416 (8,416)(e) --
General and administrative ................................... 19,196 (19,196)(e) --
Taxes other than income taxes ................................ 3,369 (3,369)(e) --
Loss on purchase commitments ................................. 7,824 (7,824)(e) --
----------- ----------- -----------
Total costs and expenses ......................... 49,226 (49,226) --
----------- ----------- -----------
Operating loss ................................... (46,398) 46,398 --
----------- ----------- -----------
Other income (expense):
Interest income .............................................. 5,190 (5,190)(e) --
Interest expense, net ........................................ (20,446) 122 (e) (20,324)
Equity in income of TransTexas before
extraordinary item ......................................... 44,552 -- 44,552
Equity in loss of TCR Holding ................................ -- (12,647)(f) (12,647)
Other ........................................................ 5 (5)(e) --
----------- ----------- -----------
Total other income ............................... 29,301 (17,720) 11,581
----------- ----------- -----------
Net income (loss) before extraordinary
items and cumulative effect of a change
in accounting principle ........................ $ (17,097) $ 28,678 $ 11,581
=========== =========== ===========
Basis and diluted net income (loss) per share ................... $ (0.57) $ 0.39
=========== ===========
Weight average number of common shares out-
standing for basis and diluted net income (loss)
per share (in thousands)....................................... 30,000 30,000
=========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma condensed
financial statements.
PF-4
<PAGE> 156
TRANSAMERICAN REFINING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) To initially record the proceeds of the New Notes and
payment of $6.5 million of debt issue costs which will be amortized as
a yield adjustment to the New Notes and $3.5 million in transaction
costs which will be charged to operations.
(b) To record, at carryover basis, (i) the transfer to TCR
Holding of the Refinery Assets and (ii) the assumption of debt and
other specified obligations of TARC other than the TARC Intercompany
Loan and the TARC Subordinated Notes in exchange for all of the capital
stock of TCR Holding, which includes the following:
Class A Participating Preferred Stock Series A and B,
$0.01 par value, 18,360,000 shares authorized; 18,360,000
shares issued and outstanding;
Class B Junior Non-Voting Participating Preferred
Stock, $0.01 par value, 7,500,000 shares authorized; 6,000,000
shares issued and outstanding;
Class C Junior Non-Voting Participating Preferred
Stock, $0.01 par value, 4,125,000 shares authorized; 3,300,000
shares issued and outstanding;
Class D Junior Non-Voting Participating Preferred
Stock, $0.01 par value, 10,875,000 shares authorized;
8,700,000 shares issued and outstanding;
Class E Junior Non-Voting Participating Preferred
Stock, $0.01 par value, 24,900,000 shares authorized;
20,400,000 shares issued and outstanding;
Class A Voting Common Stock, Series A, $0.01 par
value, 240,000 shares authorized; 240,000 shares issued and
outstanding; and
Class B Non-Voting common stock, $0.01 par value,
3,000,000 shares authorized, issued and outstanding.
Subsequent to October 31, 1998, TARC entered into an
intercompany bridge loan with its parent ("TARC Intercompany Bridge
Loan") for an aggregate principal amount of $25 million. Concurrent
with the transfer to TCR Holding described above, approximately $25
million of the proceeds from the New Notes was used to repay the TARC
Intercompany Bridge Loan, and substantially concurrently with the
transfer to TransContinental, approximately $47.0 million of accounts
payable have been or will be paid.
(c) To record (i) the acquisition of the TCR Voting Common
Stock representing 0.4% of the Residual Equity and the TCR
Non-Repurchasable Preferred Stock representing 29.6% of Residual Equity
by allocating $1.1 million of proceeds from the Notes to the investment
account based on the estimated fair value of the securities, (ii) the
acquisition by the Purchasers of a portion of the TCR Repurchasable
Preferred Stock representing 30% of the Residual Equity for $1.1
million in cash with a corresponding reduction in the investment
account, (iii) the issuance of TCR Non-Repurchasable Preferred Stock
representing 4.4% of Residual Equity with a fair value of $166,000 to
the TARC warrant holders in exchange for the TARC warrants and (iv) a
net loss of $134.8 million on the sale of 69.4% of the Residual Equity
of TCR Holding in (i), (ii) and (iii) above. After consummation of the
Transaction, TARC's investment in TCR Holding will consist of:
<TABLE>
<S> <C>
Class A Participating Preferred Stock, Series A............... $ 836,427
Class A Participating Preferred Stock, Series B............... 192,069
Residual Equity Interest...................................... 60,564
------------
$ 1,089,060
============
</TABLE>
PF-5
<PAGE> 157
TRANSAMERICAN REFINING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- Continued
(d) To record the payment of consent fees of $1.1 million to
TEC Note holders and TARC Subordinated Note holders.
(e) To reflect the transfer to TCR Holding of operations
associated with the Refinery Assets as a result of the exchange
described in (b). The unaudited condensed pro forma statements exclude
an estimated pro forma loss of $134.8 million on disposition of the
stock of TCR Holding. The actual loss will be recorded by TARC during
the fourth quarter of fiscal 1999.
(f) To reflect TARC's 30.6% Residual Equity in the net loss of
TCR Holding. As a result of the Transaction, TARC will account for its
interest in TCR Holding using the equity method.
(g) To record the issuance of 3,000,000 shares of TCR
Non-Voting Common Stock with a fair value of $188,000 to the TCW
Affiliates as debt issue cost with a corresponding reduction in the
investment account.
PF-6
<PAGE> 158
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.
"LPG" means liquefied petroleum gas, primarily propane and butane.
A-1
<PAGE> 159
"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> 160
===============================================================================
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) 549-6697
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
January 26, 1999
===============================================================================
<PAGE> 161
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).
*3.3 - Articles of Amendment dated December 15, 1998 to Articles of
Incorporation of TARC.
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> 162
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).
II-2
<PAGE> 163
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).
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).
II-3
<PAGE> 164
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).
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).
*4.32 - First Supplemental Indenture dated December 15, 1998 between
TARC and First Union National Bank regarding Series A Notes.
*4.33 - First Supplemental Indenture dated December 15, 1998 between
TARC and First Union National Bank regarding Series C Notes.
*4.34 - Second Amendment dated November 13, 1998 to TARC Intercompany
Loan Agreement.
*4.35 - Third Amendment dated December 15, 1998 to TARC Intercompany
Loan Agreement.
*4.36 - First Amendment dated December 15, 1998 to Registration Rights
Agreement regarding Series A Notes.
*4.37 - First Amendment dated December 15, 1998 to Registration Rights
Agreement regarding Series C Notes.
*4.38 - Assumption of Obligations under 1995 Warrant Agreement dated
December 15, 1998.
*4.39 - Assumption of Obligations under 1997 Warrant Agreement dated
December 15, 1998.
*4.40 - Assumption of Obligations under 1998 Warrant Agreement dated
December 15, 1998.
*5.1 - Legal opinion of Gardere & Wynne, L.L.P.
II-4
<PAGE> 165
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).
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 PricewaterhouseCoopers LLP
*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).
II-5
<PAGE> 166
*99.1 - Letter of Transmittal and Notice of Guaranteed Delivery.
- --------------------------------
* Filed herewith.
** Previously filed.
II-6
<PAGE> 167
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
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-7
<PAGE> 168
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 22nd day of January, 1999.
TRANSAMERICAN REFINING CORPORATION
By: /s/ R. Glenn McGinnis
--------------------------------------------
R. Glenn McGinnis, President and
Chief Executive Officer
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 January 22, 1999.
<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, Secretary and Director
- -------------------------------------------- (Principal Financial and Accounting Officer)
Ed Donahue
* Director
- --------------------------------------------
Thomas B. McDade
* Director
- --------------------------------------------
Donald B. Henderson
/s/ John R. Stanley Chairman of the Board and Director
- --------------------------------------------
John R. Stanley
* By: /s/ Ed Donahue
---------------------------------------
Ed Donahue, as
attorney-in-fact
</TABLE>
II-8
<PAGE> 169
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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).
*3.3 - Articles of Amendment dated December 15, 1998 to Articles of
Incorporation of TARC.
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).
<PAGE> 170
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).
<PAGE> 171
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).
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).
<PAGE> 172
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).
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).
*4.32 - First Supplemental Indenture dated December 15, 1998 between TARC
and First Union National Bank regarding Series A Notes.
*4.33 - First Supplemental Indenture dated December 15, 1998 between
TARC and First Union National Bank regarding Series C Notes.
*4.34 - Second Amendment dated November 13, 1998 to TARC Intercompany
Loan Agreement.
*4.35 - Third Amendment dated December 15, 1998 to TARC Intercompany
Loan Agreement.
*4.36 - First Amendment dated December 15, 1998 to Registration Rights
Agreement regarding Series A Notes.
*4.37 - First Amendment dated December 15, 1998 to Registration Rights
Agreement regarding Series C Notes.
*4.38 - Assumption of Obligations under 1995 Warrant Agreement dated
December 15, 1998.
*4.39 - Assumption of Obligations under 1997 Warrant Agreement dated
December 15, 1998.
*4.40 - Assumption of Obligations under 1998 Warrant Agreement dated
December 15, 1998.
*5.1 - Legal opinion of Gardere & Wynne, L.L.P.
<PAGE> 173
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).
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 PricewaterhouseCoopers LLP
*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).
<PAGE> 174
*99.1 - Letter of Transmittal and Notice of Guaranteed Delivery.
- --------------------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
TRANSAMERICAN REFINING CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, TransAmerican Refining Corporation (the "Corporation"), hereby
adopts the following Articles of Amendment to its Articles of Incorporation:
ARTICLE ONE. The name of the Corporation is TransAmerican Refining
Corporation.
ARTICLE TWO. The following amendment to the Articles of Incorporation
was adopted by the shareholders of the Corporation as of December 14, 1998:
A new Article 10 shall be added to the Articles of Incorporation of the
Corporation to read in its entirety as follows:
"ARTICLE X
Notwithstanding any other provision of these Articles of Incorporation
and any provision of law, the Corporation shall not without the
unanimous affirmative vote of the members of the Board of Directors of
the Corporation, (i) institute proceedings to be adjudicated bankrupt
or insolvent, (ii) consent to the institution of bankruptcy or
insolvency proceedings against it, (iii) file a petition seeking or
consent to reorganization or relief under any applicable federal or
state law relating to bankruptcy, (iv) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Corporation or a substantial part of the property of
the Corporation, (v) make a general assignment for the benefit of
creditors, (vi) admit in writing its inability to pay its debts
generally as they become due, or (vii) take any corporate action in
furtherance of the actions set forth in clauses (i) through (vi) of
this paragraph; provided, however, that no directors may be required by
any stockholder of the Corporation to consent to the institution of
bankruptcy or insolvency proceedings against the Corporation so long as
it is solvent."
ARTICLE THREE. The number of shares of Common Stock the Corporation
outstanding and entitled to vote was 30,000,000 at the time of the adoption of
this amendment.
ARTICLE FOUR. The holders of all of the shares of Common Stock
outstanding and entitled to vote on said amendment have signed a written consent
to the adoption of this amendment.
<PAGE> 2
Dated as of the 14th day of December, 1998.
TRANSAMERICAN REFINING CORPORATION
By: /s/ ED DONAHUE
--------------------------------
Ed Donahue, Vice President
<PAGE> 1
EXHIBIT 4.32
- --------------------------------------------------------------------------------
TRANSAMERICAN REFINING CORPORATION,
as Issuer,
and
FIRST UNION NATIONAL BANK,
as Trustee
------------------------
FIRST SUPPLEMENTAL INDENTURE
Effective as of December 15, 1998
--------------------------
$200,000,000 16% Senior Subordinated Notes due 2003
- --------------------------------------------------------------------------------
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, effective as of December 15, 1998
(the "Supplemental Indenture"), is made and entered into by and among
TRANSAMERICAN REFINING CORPORATION, a Texas corporation (the "Company"), and
FIRST UNION NATIONAL BANK (the "Trustee"), under an Indenture dated as of
December 30, 1997, by and between the Company and the Trustee (the "Original
Indenture"). All capitalized terms used in this Supplemental Indenture that are
defined in the Original Indenture, either directly or by reference therein, have
the respective meanings assigned to them therein, except to the extent such
terms are otherwise defined in this Supplemental Indenture or the context
clearly requires otherwise.
WHEREAS, Section 9.2 of the Original Indenture provides, among other
things, that, with the consent of the Holders of not less than a majority in
aggregate Value of then outstanding Notes or, with respect to certain matters,
not less than 66-2/3% in aggregate Value of the Notes at the time outstanding,
the Company, when authorized by Board Resolutions, and the Trustee may amend or
supplement the Original Indenture or the Security Documents or enter into an
indenture supplemental thereto for the purposes of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Original
Indenture or the Security Documents or of modifying in any manner the rights of
the Holders under the Original Indenture or the Notes; and
WHEREAS, the Company has solicited consents from the Holders of the
Notes (the "Consent Solicitation") to amendments (the "Proposed Amendments") to
(i) the Original Indenture and (ii) the Registration Rights Agreement dated
December 30, 1998 by and among the Company and Jefferies & Company, Inc.; and
WHEREAS, the Holders of at least 66-2/3% in aggregate Value of Notes at
the time outstanding have consented to the Proposed Amendments pursuant to the
Consent Solicitation; and
WHEREAS, the Board of Directors of the Company has adopted resolutions
authorizing and approving the Proposed Amendments and the Company and the
Trustee are executing and delivering this Supplemental Indenture in order to
provide for such amendments;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Supplemental
Indenture hereby agree as follows:
-2-
<PAGE> 3
ARTICLE I
AMENDMENTS TO ORIGINAL INDENTURE
Section 1.01. Amended Definitions. The following definitions in Section
1.1 of the Original Indenture are hereby amended as follows:
(a) The definition of "Accounts Receivable Subsidiary" is hereby
amended to read in its entirety as follows:
"Accounts Receivable Subsidiary" means a subsidiary
of TEC, the Company, TCR Holding or TransContinental
designated as an Accounts Receivable Subsidiary for the
purpose of financing the accounts receivable of
TransContinental.
(b) The definition of "Affiliate" is hereby amended to read in its
entirety as follows:
"Affiliate" means, with respect to any specified
Person, (i) any other Person directly or indirectly
controlling or controlled by, or under direct or indirect
common control with, such specified Person or (ii) any
officer, director or controlling shareholder of such other
Person. 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) without limiting the foregoing,
the beneficial ownership of 10% or more of the voting power of
the voting common equity of such Person (on a fully diluted
basis) or of warrants or other rights to acquire such equity
(regardless of whether presently exercisable). Notwithstanding
the foregoing, none of the Purchasers shall be deemed to be
"Affiliates" of the Company or any of its Subsidiaries.
(c) The definition of "Capital Improvement Program" is hereby amended
to read in its entirety as follows:
"Capital Improvement Program" means the expansion and
improvement program at the Company (or, after the Transaction
Closing Date, TransContinental).
(d) The definition of "CATOFIN(R) Unit" is hereby amended to read in
its entirety as follows:
"CATOFIN(R) Unit" means certain real property owned
by the Company before the Transaction Closing Date as more
specifically defined in the security documents relating to the
TEC Notes, together with all personal property of
TransContinental 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.
(e) The definition of "Change of Control" is hereby deleted in its
entirety.
(f) The definition of "Consolidated Fixed Charge Coverage Ratio" is
hereby amended to read in its entirety as follows:
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"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) (x) with
respect to any Person other than TCR Holding, 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 or (y) with
respect to TCR Holding, the aggregate amount of dividends and
other distributions on the Capital Stock of TransContinental
received by TCR Holding from TransContinental during the
Reference Period to (ii) the aggregate Consolidated Fixed
Charges 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, (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.
(g) The definitions of "Construction Supervisor" and "Debt" are hereby
amended to read in their entirety as follows:
"Construction Supervisor" means Baker & O'Brien,
Inc., as construction supervisor of the Capital Improvement
Program or any successor construction supervisor appointed by
TEC with the approval of TCR Holding, which approval shall not
be unreasonably withheld.
"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
or representing the balance deferred and unpaid of the
purchase price of any property acquired by such Person or
services received by such Person (other than long-term
services or supply contracts which required minimum periodic
payments), (c) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks or Swap Obligations,
(d) for the payment of money relating to a Capitalized Lease
Obligation, (e) the Attributable Debt associated with any Sale
and Leaseback Transaction or (f) Dollar-Denominated
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<PAGE> 5
Production Payments that TransTexas or any of its Subsidiaries
elect to treat as Debt (excluding all other Permitted
Production Payment Obligations); (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.
Notwithstanding anything to the contrary contained herein, for
purposes of Section 4.11, notes issued in satisfaction of the
interest obligation on up to $150 million principal amount of
15% Senior Secured Notes due 2003 issued pursuant to the
Transaction in accordance with the terms thereof shall not
constitute Debt except for purposes of the third to last and
second to last paragraphs of Section 4.11.
(h) The definition of "Disqualified Capital Stock" is hereby amended to
read in its entirety as follows:
"Disqualified Capital Stock" means, with respect to
any Person, any Capital Stock of such Person or its
Subsidiaries that, by its 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.
(i) The definition of "Gas Purchase Agreement" is hereby amended to
read in its entirety as follows:
"Gas Purchase Agreement" means the Interruptible Gas
Sales Terms and Conditions between the Company and TransTexas,
as in effect on the Issue Date and as amended from time to
time, provided that any such amendment is approved by the
Board of Directors of each of the parties thereto.
(j) The definition of "Insurance Proceeds" is hereby amended to read in
its entirety as follows:
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<PAGE> 6
"Insurance Proceeds" means the interest in and to all
proceeds (net of costs of collection, including attorney's
fees) which now or hereafter may be paid under any insurance
policies now or hereafter obtained by or on behalf of the
Company, TEC, TCR Holding, TransContinental, TransTexas, or
any Guarantor in connection with any assets thereof, together
with interest payable thereon and the right to collect and
receive the same, including, without limitation, proceeds of
casualty insurance, title insurance, business interruption
insurance and any other insurance now or hereafter maintained
with respect to such assets.
(k) The definition of "Permitted Investment" is hereby amended to read
in its entirety as follows:
"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 any of the
TARC Entities or any of the TCR Holding Entities in any of the
TCR Holding Entities or in TransContinental and Investments by
any of the TCR Holding Entities in any of the TARC Entities;
(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 the Company in an
aggregate amount not in excess of $10,000,000 (net of returns
on investment) plus the assets comprising the CATOFIN(R) Unit
owned by the Company 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 Subsidiary Notes by any of the TARC Entities or
any of the TCR Holding Entities in amounts not to exceed the
greater of $20 million or 20% of the TransContinental
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 Section 4.11; (xiv) deposits
permitted by the definition of "Permitted Liens" or any
extension, renewal, or replacement 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, (xvii) Investments in money market mutual or
similar funds having assets in excess of $100,000,000 and
(xviii)
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<PAGE> 7
the purchase or other acquisition by TARC, TCR Holding and
their Subsidiaries of TEC Notes or by TCR Holding and its
Subsidiaries of Notes or Series C/D Notes.
(l) The definition of "Permitted Liens" is hereby amended to read in
its entirety as follows:
"Permitted Liens" means (a) Liens imposed by
governmental authorities for taxes, assessments, or other
charges not yet due or which are being contested in good faith
and by 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; (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
operations of such New Property, (ii) the principal amount of
the Debt secured by such Lien does not exceed 100% of such
costs 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
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<PAGE> 8
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 and Liens encumbering contract rights under
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 the
Company or TCR Holding; (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 Section 4.11; 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 secure Senior Debt; (v) Liens on any
property of the Company or its Subsidiaries (or any agreement
to grant such Liens) securing the Series C/D Notes or the
Notes, (w) Liens on any Property owned by TransContinental and
(x) Liens on any Property owned by the Company or TCR Holding
to secure Debt permitted by clause (s) of Section 4.11.
(m) The definition of "Phase I Completion Date" is hereby amended to
read in its entirety as follows:
"Phase I Completion Date" means the date on which the
Construction Supervisor issues a written notice (the "Phase I
Completion Notice") to TEC certifying that the Phase I
Performance Test has been completed.
(n) A definition of "Phase I Performance Test " is hereby added to the
Original Indenture to read in its entirety as follows:
"Phase I Performance Test" means for a period of at
least 72 uninterrupted hours, TransContinental's refinery has
sustained (i) an average feedstock throughput level of at
least 150,000 barrels per day and (ii) 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.
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<PAGE> 9
(o) The definition of "Phase II Completion Date" is hereby amended to
read in its entirety as follows:
"Phase II Completion Date" means the date on which
the Construction Supervisor issues a written notice (the
"Phase II Completion Notice") to TEC certifying that for a
period of at least 72 uninterrupted hours, TransContinental's
refinery has sustained (i) an average feedstock throughput
level of at least 180,000 barrels per day and (ii) 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 60%, when using a combined
Crude Unit feedstock slate with an average API Gravity of 22
degrees or less.
(p) The definition of "Plans" is hereby amended to read in its entirety
as follows:
"Plans" means (a) the plans and specifications
prepared by or on behalf of the Company (or, after the
Transaction Closing Date, TransContinental), which describe
and show the proposed expansion and modification of the
Company's (or, after the Transaction Closing Date,
TransContinental's) refinery as amended from time to time with
the consent of the Construction Supervisor and (b) a budget
prepared by or on behalf of the Company (or, after the
Transaction Closing Date, TransContinental) as amended from
time to time with the consent of the Construction Supervisor.
(q) A definition of "Purchasers" is hereby added to the Original
Indenture to read in its entirety as follows:
"Purchasers" means the initial purchasers from TARC
pursuant to the Transaction of voting stock of TCR Holding and
their transferees and Affiliates (in each case other than the
Company and its Subsidiaries).
(r) A definition of "Refinery Assets" is hereby added to the Original
Indenture to read in its entirety as follows:
"Refinery Assets" means substantially all of the
assets of TARC immediately prior to the Transaction Closing
Date.
(s) The definition of "Related Person" is hereby amended to read in its
entirety as follows:
"Related Person" means (i) any Person (other than a
Purchaser or TransContinental and any of its Subsidiaries)
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
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<PAGE> 10
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).
(t) The definition of "Restricted Payment" is hereby amended to read in
its entirety as follows:
"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 TCR Holding or from any of the
Company's Subsidiaries or to TCR Holding by any of TCR
Holding's 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 Services Agreement, the
Expense Reimbursement Agreement, the Office Leases, the
Transfer Agreement 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 clauses (o), (s) and (u) 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 the Company or TCR
Holding of shares of Capital Stock of the Company, TCR
Holding, TransContinental, 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, with respect to
the issuer, not to exceed 7% of the aggregate number of shares
of voting stock held by nonaffiliates of the issuer measured
from the date of the first such purchase, (viii) distributions
of common stock of TransTexas to TEC, (ix) any dividend or
other distribution on the Capital Stock of any Subsidiary of
the Company, (x) any purchase of Capital Stock of TCR Holding
by the Company, (xi) any purchase of Capital Stock of
TransContinental by TCR Holding, (xii) any dividend or payment
on shares of Capital Stock of TCR Holding the proceeds of the
issuance of which are used to purchase TEC Notes and (xiii)
the TCR Holding Participating Preferred Stock Redemption.
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<PAGE> 11
(u) The definition of "Senior Debt" is hereby amended to read in its
entirety as follows:
"Senior Debt" means, all Debt of the Company or, with
respect to its use in the definition of "Permitted Liens"
only, TCR Holding, including, without limitation, the TARC
Discount Notes, the TARC Mortgage Notes, the TARC Working
Capital Loan 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 Series C/D
Notes and the Notes, (ii) Debt of the Company to any
Subsidiary of the Company or to any Unrestricted Subsidiary of
the Company (other than to facilitate the purchase of the
common stock purchase warrants of TARC), 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.
(v) A definition of "Series C/D Notes" is hereby added to read in its
entirety as follows:
"Series C/D Notes" means the Company's 16% Senior
Subordinated Notes due 2003 issued pursuant to the Indenture
dated March 16, 1998 between the Company and First Union
National Bank, as trustee, providing for the issuance of such
notes, as such may be amended, supplemented and restated from
time to time.
(w) The definition of "Services Agreement" is hereby amended to read in
its entirety as follows:
"Services Agreement" means the Services Agreement
among TNGC Holdings and its Subsidiaries, as in effect on the
Issue Date and as amended from time to time, provided that any
such amendment is approved by the Board of Directors of each
of the parties thereto that will be bound by such amendment.
(x) The definition of "Subsidiary" is hereby amended to read in its
entirety as follows:
"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
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<PAGE> 12
purposes of the Indenture provisions "Subsidiary Guarantees,"
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; provided, further, however, that
TCR Holding and its subsidiaries other than TransContinental
shall be "Subsidiaries" of TARC (except for purposes of
Section 4.16) and TransContinental shall not be a "Subsidiary"
of any Person.
(y) The definition of "TARC Intercompany Loan" is hereby amended to
read in its entirety as follows:
"TARC Intercompany Loan" means the senior secured
promissory note from the Company to TEC in the fully accreted
principal amount of $920,000,000 upon substantially the terms
described in the Registration Statement on Form S-4, as
amended, of TEC under the heading "Description of Existing
Indebtedness -- TARC Intercompany Loan" and as amended from
time to time in accordance with its terms.
(z) A definition of "TARC Intercompany Loan Amendment" is hereby added
to the Original Indenture to read in its entirety as follows:
"TARC Intercompany Loan Amendment" means the second
amendment to the TARC Intercompany Loan Agreement upon
substantially the terms described in the form attached hereto
as Exhibit .
(aa) A definition of "TransContinental" is hereby added to the Original
Indenture to read in its entirety as follows:
"TransContinental" means TransContinental Refining
Corporation, a Delaware corporation, to which the Refinery
Assets will be transferred by TCR Holding pursuant to the
Transaction and, for purposes of Section 4.11 hereof, its
Subsidiaries.
(bb) The definition of "TARC Borrowing Base" is hereby amended to read
in its entirety as follows:
"TransContinental 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 TransContinental 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 TransContinental 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, TransContinental may utilize, to the extent
reasonable, the most recent available information for purposes
of calculating the TransContinental Borrowing Base.
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<PAGE> 13
(cc) A definition of "TCR Holding" is hereby added to the Original
Indenture to read in its entirety as follows:
"TCR Holding" means TCR Holding Corporation, a
Delaware corporation, to which the Refinery Assets will be
transferred by TARC pursuant to the Transaction.
(dd) A definition of "TCR Holding Entities" is hereby added to the
Original Indenture to read in its entirety as follows:
"TCR Holding Entities" means TCR Holding and each of
its Subsidiaries.
(ee) A definition of "TCR Holding Participating Preferred Stock" is
hereby added to the Original Indenture to read in its entirety as
follows:
"TCR Holding Participating Preferred Stock" means the
participating preferred stock of TCR Holding issued pursuant
to the Transaction.
(ff) A definition of "TCR Holding Participating Preferred Stock
Redemption" is hereby added to the Original Indenture to read in its
entirety as follows:
"TCR Holding Participating Preferred Stock
Redemption" means the redemption by TCR Holding of the TCR
Holding Participating Preferred Stock in exchange for (i) debt
securities of TCR Holding with an aggregate principal amount
equal to the liquidation preference of the TCR Holding
Participating Preferred Stock, with a maturity date of June 1,
2002 and bearing interest at a rate sufficient to pay interest
on the TARC Intercompany Loan, the Notes and the Series C/D
Notes and (ii) common stock of TCR Holding equal to 30.6% of
the equity interest in TCR Holding and 41% of the voting power
of TCR Holding's capital stock.
(gg) A definition of "TARC Intercompany Subordinated Note" is hereby
added to the Original Indenture to read in its entirety as follows:
"TARC Intercompany Subordinated Note" means that
certain note and related documents (i) evidencing debt of TCR
Holding to TARC in an amount and with principal and interest
payment terms sufficient to service the payment of interest
and principal on the Notes and the Series C/D Notes (after
giving effect to any amounts in any Interest Reserve Account)
and (ii) containing a covenant of TCR Holding to pledge the
stock it owns of TransContinental, if any, as of the date of
the payment in full of the TARC Intercompany Loan; provided,
that TCR Holding 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 TCR Holding 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 amount of such Other Debt) is equal to or less than the
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.
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<PAGE> 14
(hh) A definition of "TARC Working Capital Loan" is hereby added to the
Original Indenture to read in its entirety as follows:
"TARC Working Capital Loan" means a loan by TEC to
TARC of up to $50 million, which will be assumed by TCR
Holding pursuant to the Transaction.
(ii) The definition of "Tax Allocation Agreement" is hereby amended to
read in its entirety as follows:
"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
approved by the Board of Directors of each of the parties
thereto that will be bound by such amendment.
(jj) A definition of "Transaction" is hereby added to the Original
Indenture to read in its entirety as follows:
"Transaction" means a series of related transactions
(as more fully described in the Company's Consent Solicitation
Statement dated October 5, 1998, as amended, pursuant to which
consents were solicited from the Holders to amendments to the
Indenture to facilitate the Transaction, which description is
incorporated herein by reference) pursuant to which, among
other things, (i) the Lien on the TARC Collateral (as defined
in the TEC Indenture) is released, (ii) TARC transfers to TCR
Holding the Refinery Assets in exchange for (x) all of the
capital stock of TCR Holding and (y) the assumption by TCR
Holding of certain debt and other obligations of TARC, (iii)
TCR Holding transfers to TransContinental the Refinery Assets
in exchange for all of the common stock of TransContinental
and TransContinental assumes the debt and other obligations of
TARC assumed by TCR Holding other than the TARC Working
Capital Loan and (iv) certain Purchasers purchase (x) debt
securities issued by TARC, (y) equity securities issued by
TransContinental and (z) TCR Holding Capital Stock from TARC
for aggregate gross proceeds of approximately $151 million.
(kk) A definition of "Transaction Closing Date" is hereby added to the
Original Indenture to read in its entirety as follows:
"Transaction Closing Date" means the date the
Refinery Assets are transferred by TARC to TCR Holding and by
TCR Holding to TransContinental pursuant to the Transaction.
(ll) The definition of "Unrestricted Non-Recourse Debt" is hereby
amended to read in its entirety as follows:
"Unrestricted Non-Recourse Debt" of the Company,
TransContinental or any of the Subsidiaries of the Company
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
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<PAGE> 15
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 (x)
20% of the Company's Consolidated EBITDA since the Phase II
Completion Date in the case of the Company, (y) 20% of TCR
Holding's Consolidated EBITDA since the Phase II Completion
Date in the case of TCR Holding or (z) 20% of
TransContinental's Consolidated EBITDA since the Phase II
Completion Date in the case of TransContinental plus in the
case of clause (ii) of this definition of Unrestricted
Non-Recourse Debt, Restricted Payments permitted to be made
pursuant to Section 4.3.
Section 1.02. Section 4.3 of the Original Indenture. Section 4.3 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 4.3 Limitation on Restricted Payments. The
Company shall not, and shall not permit any of its
Subsidiaries to, 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 Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any Restricted
Payment; provided, however, that the Company or TCR Holding
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:
(i) in the case of Restricted Payments by the
Company:
(a) the Company'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 the Company accrued for the period (taken as one
accounting period) from the first full fiscal quarter
that commenced after the Issue Date to and including
the fiscal quarter ended immediately prior to the
date of each calculation for which financial
statements are available (or, if the Company's
Adjusted Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (y)
the aggregate Net Proceeds received by the Company
from the issuance or sale (other than to a Subsidiary
of the Company) 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
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<PAGE> 16
amount of any write-downs, write-offs, other negative
revaluations, and other negative extraordinary
charges not otherwise reflected in the Company's
Adjusted Consolidated Net Income during such period;
and
(ii) in the case of Restricted Payments by TCR Holding:
(a) TCR Holding'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 TCR Holding 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 Transaction Closing Date and on or prior to
the date of such Restricted Payment, would not exceed
an amount equal to the sum of (w) $1,000,000, plus
(x) 50% of Adjusted Consolidated Net Income of TCR
Holding accrued for the period (taken as one
accounting period) from the first full fiscal quarter
that commenced after the Transaction Closing Date to
and including the fiscal quarter ended immediately
prior to the date of each calculation for which
financial statements are available (or, if TCR
Holding'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 TCR Holding from the issuance or sale
(other than to a Subsidiary of TCR Holding) of its
Qualified Capital Stock from and after the
Transaction Closing 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 TCR Holding's
Adjusted Consolidated Net Income during such period;
provided, that nothing in this Section 4.3 shall prohibit the
payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date
of its declaration in compliance with the foregoing
provisions.
Section 1.03. Section 4.7 of the Original Indenture. Section 4.7(d) of
the Original Indenture is hereby deleted in its entirety.
Section 1.04. Section 4.8 of the Original Indenture. Section 4.8 of the
Original Indenture is hereby amended to read as follows:
Section 4.8 SEC Reports. The Company shall deliver to
the Trustee and each Holder, within 15 days after it files the
same with the SEC, copies of all reports and information (or
copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe), if any, which the Company
is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act. The Company shall include in all
such reports and information a summary of the status of the
Company's Capital Improvement Program, including a description
of sources of funds available for the completion of the
Capital Improvements Program. The Company agrees to continue
to be subject to and comply with
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<PAGE> 17
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. The Company shall also comply with
the other provisions of TIA Section 314(a).
The Company shall, upon request, provide to each
Holder and to each beneficial owner and prospective purchaser
of Notes identified by any Holder of Restricted Notes the
information required by clause (d)(4) of Rule 144A until the
earlier to occur of (i) there existing no further necessity
for an offer or sale of the Notes to qualify for an exemption
under such Rule or (ii) the consummation of a registered
exchange offer for the Notes.
Section 1.05. Section 4.10 of the Original Indenture. Section 4.10 of
the Original Indenture is hereby amended as follows:
(a) Section 4.10(a) of the Original Indenture is hereby amended to read
in its entirety as follows:
(a) The Company shall not, and shall not permit any
of its Subsidiaries to, enter directly or indirectly into, or
permit to exist, any transaction or series of related
transactions with any Related Person (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 property, 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), (xi),
(xii), (xvi) and (xviii) of the definition of "Permitted
Investment"), 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) 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 between Wholly Owned
Subsidiaries of the Company; (D) transactions pursuant to the
Services Agreement, the Tax Allocation Agreement, the Gas
Purchase Agreement, and the Expense Reimbursement Agreement,
in each case including amendments thereto that are approved by
the Board of Directors of each of the parties thereto that
will be bound by such amendments, and the Transfer Agreement,
the TARC Intercompany Loan and related security documents, and
the Registration Rights Agreement; (E) the lease of office
space to the Company or an Affiliate of 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
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<PAGE> 18
employee by the Company and its Subsidiaries does not provide
for cash compensation in excess of $5,000,000 in any fiscal
year of the Company or any Subsidiary and which has been
approved by a majority of the Company's Independent 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 the Company and TCR Holding which are
permitted to be Incurred pursuant to the terms of Section
4.11; (H) the amounts payable by the TEC and its Subsidiaries
to Southeast Contractors for employee services provided to the
Company or TransContinental 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
$2,000,000 per year in the aggregate; (I) the Company and its
Subsidiaries may pay a management fee to TransAmerican in an
amount not to exceed $2,500,000 per year; (J) transactions
effected pursuant to the Transaction, including without
limitation (i) the execution, delivery and performance of the
TARC Intercompany Loan Amendment, the TCR Holding Pledge
Agreement, an amendment of the Services Agreement and a
Securities Purchase Agreement among TARC, TCR Holding,
TransContinental, TEC and certain of the Purchasers providing
for the sale to such Purchasers of Capital Stock of TCR
Holding owned by TARC pursuant to the Transaction, (ii) the
transfer of the Refinery Assets by TARC to TCR Holding and, as
consideration therefor, the issuance by TCR Holding to TARC of
Capital Stock of TCR Holding, the assumption by TCR Holding of
certain debt and obligations of TARC (including Debt of TARC
to the Purchasers and certain others), and (iii) the transfer
of the Refinery Assets by TCR Holding to TransContinental and,
as consideration therefor, the issuance by TransContinental of
its common stock to TCR Holding and the assumption by
TransContinental of certain debt and obligations of TCR
Holding; (K) the delivery of TEC Notes to TEC in satisfaction
of the TARC Intercompany Loan; (L) the issuance and sale of
the TCR Holding Participating Preferred Stock; (M) the TCR
Holding Participating Preferred Stock Redemption; and (N)
transactions between or among TCR Holding or TransContinental
and any of their respective Related Persons, provided such
transaction is approved by the Board of Directors of each of
the parties thereto.
(b) Section 4.10(b) of the Original Indenture is hereby amended to read
in its entirety as follows:
(b) Without limiting the foregoing, except for sales
of accounts receivable to an Accounts Receivable Subsidiary in
accordance with Section 4.20, (i) 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), (G), (J), (K), (L), (M) or (N) of Section
4.10(a)) with an aggregate value in excess of $5,000,000, 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 (x) fair and reasonable to the Company or
such Subsidiary, as the case may be, and (y) 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 (ii) with respect to any Related Person Transaction or
series of related Person Transactions
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<PAGE> 19
(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), (G), (J), (K), (L), (M) or (N) of Section
4.10(a)) with an aggregate value in excess of $10,000,000, 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 nationally recognized investment banking or
accounting 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.
Section 1.06. Section 4.11 of the Original Indenture. Section 4.11 of
the Original Indenture is hereby amended as follows:
(a) The first paragraph of Section 4.11 of the Original Indenture is
hereby amended to read in its entirety as follows:
Section 4.11 Limitation on Incurrences of Additional
Debt and Issuances of Disqualified Capital Stock.Except as set
forth in this Section 4.11, from and after the Issue Date, the
Company shall not, and shall not permit TransContinental or
any of the Company's 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 in an aggregate amount not to exceed $200 million
in proceeds to the Company less the aggregate amount of
proceeds to the Company pursuant to Debt incurred under clause
(p) below; (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 of 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 Section 4.14 hereof; (c)
Subordinated Debt of the Company solely to any wholly owned
Subsidiary of the Company, Debt of TCR Holding solely to
TransContinental or any wholly owned Subsidiary of TCR
Holding, Debt or Disqualified Capital Stock of TCR Holding to
TARC, Debt of any wholly owned Subsidiary of the Company
solely to the Company or to any wholly owned Subsidiary of the
Company or Debt of TransContinental or any wholly owned
Subsidiary of TCR Holding solely to TCR Holding or to any
wholly owned Subsidiary of TCR Holding; (d) Debt of
TransContinental outstanding at any time in an aggregate
principal amount not to exceed the greater of (x) $100 million
or (y) the TransContinental Borrowing Base, less, in each
case, the amount of any Debt of an Accounts Receivable
Subsidiary (other than Debt owed to the Company or
TransContinental); (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) or (r) of the definition of "Permitted Liens," to the
extent that such Liens would give
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<PAGE> 20
rise to Debt under clauses (i), (ii), or (iii) of the
definition of "Debt;" (h) Any guaranty of Debt incurred
pursuant to 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 (j) Unrestricted Non-Recourse
Debt; (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 the Company or any of its Subsidiaries or
TransContinental owed to TEC which is loaned pursuant to terms
of the fourth paragraph of either of the covenants contained
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) each of the
Company, its Subsidiaries and TransContinental may Incur Debt
as an extension, renewal, replacement, or refunding of any
item of the Debt permitted to be Incurred by clauses (b), (p),
(r), (v), (w) or (x) hereof, or this clause (o) (each such
item of Debt is referred to as "Refinancing Debt"), provided,
that (1) the maximum principal amount of each item of
Refinancing Debt (or, if such 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 item of
Debt being extended, renewed, replaced, or refunded plus
Refinancing Fees or (y) if such item of 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 and (2) each item
of Refinancing Debt shall rank with respect to the Notes to an
extent no less favorable in respect thereof to the Holders
than the related Debt being refinanced; (p) Pari Passu Debt or
Subordinated Debt of the Company or TCR Holding with initial
net proceeds to the Company not in excess of $25 million in
the aggregate less the aggregate amount of proceeds to the
Company pursuant to Debt incurred under clause (a) above after
the Issue Date; (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
TransContinental Incurred in connection with the acquisition,
construction or improvement of a CATOFIN(R) Unit not in excess
of 20% of TransContinental'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, (s) Debt of
TARC, TCR Holding or TransContinental with an aggregate
principal amount outstanding at any one time of up to $225
million, (t) Debt of TARC (other than Debt secured by Storage
Assets in the initial aggregate principal amount of $36
million) that is assumed by TCR Holding or TransContinental in
connection with the Transaction, (u) Debt of TCR Holding with
an aggregate principal amount outstanding at any one time not
in excess of $200 million, (v) Debt of TCR Holding (other than
Debt incurred pursuant to clause (s) above) that is assumed by
TransContinental in connection with the Transaction, (w)
Disqualified Capital Stock of TCR Holding or TransContinental
or unsecured Debt of TCR Holding or unsecured or secured Debt
of TransContinental, (1) the proceeds of which are used to
repurchase TEC Notes or (2) that is exchanged for TEC Notes,
(x) Debt or Disqualified Capital Stock of TCR Holding or
TransContinental that is used to refinance or replace the TARC
Intercompany Loan and (y) Debt of the Company, TCR Holding or
TransContinental owed to TEC that does not in the aggregate
exceed $50 million principal amount outstanding at any one
time.
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<PAGE> 21
(a) The third to last and second to last paragraph of Section 4.11 of
the Original Indenture is hereby amended to read in its entirety as
follows:
Notwithstanding the foregoing provisions of this
covenant, (a) the Company, TCR Holding and TransContinental
may Incur Senior Debt and the Company, TCR Holding and
TransContinental 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 the
entity incurring such Debt for the Reference Period is greater
than 2.25 to 1, and (b) the Company, TCR Holding and
TransContinental 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 the
entity incurring such Debt 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 the Company, TCR
Holding or TransContinental, 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 the Company, TCR Holding or TransContinental
or one of their 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 the Company, TCR Holding or
TransContinental, respectively, or one of their respective
Subsidiaries.
Section 1.07. Section 4.12 of the Original Indenture. Section 4.12 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.12 Limitations on Restricting Subsidiary
Dividends. The Company shall not, and shall not permit any of
its Subsidiaries (other than TCR Holding) to, directly or
indirectly, create, assume, or suffer to exist any consensual
encumbrance or restriction on the ability of any Subsidiary of
the Company (other than TCR Holding) 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. Notwithstanding anything contained
herein to the contrary, neither the Company nor TCR Holding
may create an encumbrance or restriction on their ability to
pay premium, if any, principal of, or interest on, the TARC
Intercompany Loan.
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Section 1.08. Section 4.13 of the Original Indenture. Section 4.13 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.13 Liens. The Company shall not, and shall
not permit any of its Subsidiaries 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 Permitted Liens. Notwithstanding anything in this
Indenture to the contrary, (i) TARC shall not, directly or
indirectly, Incur or suffer to exist any Lien on the Capital
Stock of TCR Holding owned by it (other than a Lien to secure
the TARC Intercompany Loan), (ii) TCR Holding may incur a Lien
on Capital Stock of TransContinental to secure the TARC
Working Capital Loan and (iii) TransContinental shall not be
bound by this Section 4.13. For the purpose of determining
compliance with this Section 4.13, 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.
Section 1.09. Section 4.14 of the Original Indenture. Section 4.14 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.14 Limitation on Asset Sales. Intentionally
Omitted.
Section 1.10. Section 4.18 of the Original Indenture. Section 4.18 of
the Original Indenture is hereby amended to read as follows:
Section 4.18 Limitations on Line of Business. The
Company shall not 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 or incidental thereto.
The Company shall not permit TransContinental directly or
indirectly to engage to any substantial extent in any line or
lines of business activity other than a Related Business or
such other business activities as are reasonably related or
incidental thereto.
Section 1.11. Section 4.20 of the Original Indenture. Section 4.20(a)
of the Original Indenture is hereby amended to read as follows:
(a) Notwithstanding the provisions of Section 4.3,
the Company may, and may permit any of its Subsidiaries to,
make Investments in an Accounts Receivable Subsidiary (i) the
proceeds of which are applied within five Business Days of the
making thereof solely to finance the purchase of accounts
receivable of the Company and its Subsidiaries and (ii) in the
form of Accounts Receivable Subsidiary Notes to the extent
permitted by clause (b) below; provided that the aggregate
amount of such Investments shall not exceed the greater of $20
million or 20% of the TransContinental Borrowing Base at any
time;
Section 1.12. Section 4.23 of the Original Indenture. Section 4.23 of
the Original Indenture is hereby deleted.
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Section 1.13. Sections 4.23 and 4.24 of the Original Indenture. New
Sections 4.23 and 4.24 are hereby added to the Original Indenture to follow
Section 4.22 to read in their entirety as follows:
Section 4.23 Monthly Status Reports. The Company
shall cause TransContinental to, (A) not later than the 20th
day of each month (or, if such day is not a Business Day, then
the first Business Day following such day), commencing in
December 1998 and continuing through the Phase II Completion
Date, issue a press release (and, if applicable, file a copy
thereof with the SEC pursuant to a Form 8-K Current Report)
generally disclosing the status of completion of the Capital
Improvement Program through the end of the immediately
preceding month and (B) conduct a monthly telephone conference
call relating thereto with the chief executive officer of TARC
or his designee in which Holders will be entitled to
participate and provide notice by press release of the time
and place of such call at least 48 hours in advance thereof.
Section 4.24 Limitation on Issuances of Equity
Securities by TCR Holding or TransContinental. The Company
shall not permit TCR Holding, TransContinental or any
Subsidiary of either of them to issue (other than pursuant to
the Transaction, including securities issued upon conversion
of or in exchange for securities issued pursuant to the
Transaction upon the terms established in connection with the
Transaction, or issuances to TransContinental or any of its
Subsidiaries) any Capital Stock or other equity securities
(other than Disqualified Capital Stock that is not convertible
into or exchangeable for Qualified Capital Stock and other
equity securities that are not accounted for as equity
securities in accordance with GAAP) unless the issuer first
obtains a favorable written opinion as to the fairness of such
transaction to the issuer, from a financial point of view,
from an independent nationally recognized accounting or
investment banking firm.
Section 1.14. Section 5.1 of the Original Indenture. Section 5.1 of the
Original Indenture is hereby amended to add subsection (d) to read in its
entirety as follows:
(d) Notwithstanding anything contained in this
Article V to the contrary, (i) the provisions of clause (a)
shall not apply to the transfer by TARC to TCR Holding of the
Refinery Assets as part of the Transaction, (ii) the
provisions of clause (a) shall not apply to the transfer to
TransContinental by TCR Holding of the Refinery Assets as part
of the Transaction and (iii) the provisions of clauses (a)(2),
(a)(3) and (a)(5) shall not apply to a merger of TARC with or
into TEC.
Section 1.15. Section 5.2 of the Original Indenture. Section 5.2 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 5.2 Successor Corporation Substituted. Upon
any consolidation or merger, or any transfer of assets in
accordance with Section 5.1 (other than the transfers of the
Refinery Assets by the Company to TCR Holding and by TCR
Holding to TransContinental pursuant to the Transaction), the
Surviving Person formed by such consolidation or into which
the Company, or a Guarantor, as the case may be, 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, or such Guarantor, as the case may be, under this
Indenture with the same effect as if such Surviving Person had
been named as the Company, or such
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<PAGE> 24
Guarantor, as the case may be, herein. When a Surviving Person
duly assumes all of the obligations of the Company pursuant
hereto and pursuant to the Notes, the predecessor shall be
released from such obligations.
Section 1.16. Section 6.1 of the Original Indenture. Section 6.1(d) of
the Original Indenture is hereby amended to read in its entirety as follows:
(d) a default which extends beyond any stated period
of grace applicable thereto, including any extension thereof,
under any mortgage, indenture or instrument under which there
is outstanding any Debt of the Company, any of its
Subsidiaries or TransContinental with an aggregate principal
amount in excess of $20,000,000 if by reason of such default
the principal of such Debt and all accrued and unpaid interest
thereon has been declared due and payable, or failure to pay
such Debt at its stated maturity, 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, forebearance or notice
period; provided that a waiver by the lenders of such Debt of
such default 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 or acceleration continues for a
period of 10 days; provided, that a rescission 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.
Section 1.17. Section 9.1 of the Original Indenture. Section 9.1 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 9.1 Supplemental Indentures Without Consent
of Holders. Without the consent of any Holder, the Company and
the Guarantors, if any, when authorized by Board Resolutions,
and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto or a
restatement hereof in form satisfactory to the Trustee, for
any of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency,
or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided
such action pursuant to this clause (a) shall not adversely
affect the interests of any Holder in any respect;
(b) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power
herein conferred upon the Company or to make any other change
that does not adversely affect the rights of any Holder,
provided that the Company has delivered to the Trustee an
Opinion of Counsel stating that such change does not adversely
affect the rights of any Holder;
(c) to evidence the succession of another Person to
the Company and the assumption by any such successor of the
obligations of the Company herein and in the Notes in
accordance with Article V;
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<PAGE> 25
(d) to comply with the TIA; or
(e) to restate this Indenture so that it reflects
this Indenture as originally executed as amended by all
amendments and supplements hereto through the date of such
restatement and contains only the then effective provisions of
this Indenture.
Section 1.18. Section 9.6 of the Original Indenture. Section 9.6 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 9.6 Trustee to Sign Amendments, Etc. The
Trustee shall execute any amendment, supplement, restatement
or waiver authorized pursuant to this Article IX, provided
that the Trustee may, but shall not be obligated to, execute
any such amendment, supplement, restatement or waiver which
affects the Trustee's own rights, duties or immunities under
this Indenture. The Trustee at the expense of the Company
shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution
of any amendment, supplement, restatement or waiver authorized
pursuant to this Article IX is authorized or permitted by this
Indenture.
Section 1.19. Article XI of the Original Indenture. Article XI of the
Original Indenture is hereby amended to read in its entirety as follows:
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
INTENTIONALLY OMITTED
ARTICLE II
GENERAL PROVISIONS
Section 2.01. Effectiveness of Amendments. This Supplemental Indenture
is effective as of the date first above written. However, the provisions of the
Original Indenture amended or eliminated as provided in this Supplemental
Indenture (the "Amended Provisions") shall remain operative in the form in which
they exist in the Original Indenture until the Transaction Closing Date,
whereupon the Amended Provisions will be amended or eliminated as provided
herein, effective immediately prior to the Transaction Closing Date.
Section 2.02. Ratification of Indenture. The Original Indenture is in
all respects acknowledged, ratified and confirmed, and shall continue in full
force and effect in accordance with the terms thereof and as supplemented by
this Supplemental Indenture. The Original Indenture and this Supplemental
Indenture, shall be read, taken and construed as one and the same instrument.
Section 2.03. Certificate and Opinion as to Conditions Precedent.
Simultaneously with and as a condition to the execution of this Supplemental
Indenture, the Company is delivering to the Trustee:
(a) an Officers' Certificate in the form attached hereto as
Exhibit A; and
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<PAGE> 26
(b) an Opinion of Counsel covering the matters described in
Exhibit B attached hereto.
Section 2.04. Effect of Headings. The Article and Section headings in
this Supplemental Indenture are for convenience only and shall not affect the
construction of this Supplemental Indenture.
Section 2.05. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 2.06. Counterparts. This Supplemental Indenture may be executed
in any number if counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute the same
instrument.
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<PAGE> 27
IN WITNESS WHEREOF, the parties to this Supplemental Indenture have
caused the Supplemental Indenture to be duly executed, and their respective
corporate seals to be hereunto affixed and attached, on and effective as of day
and year first above written.
TRANSAMERICAN REFINING CORPORATION,
A Texas corporation
Attest: By:
-------------------------- ------------------------------------
Ann F. Gullion, Name: Ed Donahue
Assistant Secretary Title: Vice President and Secretary
FIRST UNION NATIONAL BANK,
As Trustee
By:
---------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 4.33
- --------------------------------------------------------------------------------
TRANSAMERICAN REFINING CORPORATION,
as Issuer,
and
FIRST UNION NATIONAL BANK,
as Trustee
------------------------
FIRST SUPPLEMENTAL INDENTURE
Effective as of December 15, 1998
--------------------------
$25,000,000 16% Senior Subordinated Notes due 2003
- --------------------------------------------------------------------------------
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, effective as of December 15, 1998
(the "Supplemental Indenture"), is made and entered into by and among
TRANSAMERICAN REFINING CORPORATION, a Texas corporation (the "Company"), and
FIRST UNION NATIONAL BANK (the "Trustee"), under an Indenture dated as of March
16, 1998, by and between the Company and the Trustee (the "Original Indenture").
All capitalized terms used in this Supplemental Indenture that are defined in
the Original Indenture, either directly or by reference therein, have the
respective meanings assigned to them therein, except to the extent such terms
are otherwise defined in this Supplemental Indenture or the context clearly
requires otherwise.
WHEREAS, Section 9.2 of the Original Indenture provides, among other
things, that, with the consent of the Holders of not less than a majority in
aggregate Value of then outstanding Notes or, with respect to certain matters,
not less than 66-2/3% in aggregate Value of the Notes at the time outstanding,
the Company, when authorized by Board Resolutions, and the Trustee may amend or
supplement the Original Indenture or the Security Documents or enter into an
indenture supplemental thereto for the purposes of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Original
Indenture or the Security Documents or of modifying in any manner the rights of
the Holders under the Original Indenture or the Notes; and
WHEREAS, the Company has solicited consents from the Holders of the
Notes (the "Consent Solicitation") to amendments (the "Proposed Amendments") to
(i) the Original Indenture and (ii) the Registration Rights Agreement dated
March 16, 1998 by and among the Company and Jefferies & Company, Inc.; and
WHEREAS, the Holders of at least 66-2/3% in aggregate Value of Notes at
the time outstanding have consented to the Proposed Amendments pursuant to the
Consent Solicitation; and
WHEREAS, the Board of Directors of the Company has adopted resolutions
authorizing and approving the Proposed Amendments and the Company and the
Trustee are executing and delivering this Supplemental Indenture in order to
provide for such amendments;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Supplemental
Indenture hereby agree as follows:
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<PAGE> 3
ARTICLE I
AMENDMENTS TO ORIGINAL INDENTURE
Section 1.01. Amended Definitions. The following definitions in Section
1.1 of the Original Indenture are hereby amended as follows:
(a) The definition of "Accounts Receivable Subsidiary" is hereby
amended to read in its entirety as follows:
"Accounts Receivable Subsidiary" means a subsidiary of TEC,
the Company, TCR Holding or TransContinental designated as an
Accounts Receivable Subsidiary for the purpose of financing the
accounts receivable of TransContinental.
(b) The definition of "Affiliate" is hereby amended to read in its
entirety as follows:
"Affiliate" means, with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, such specified
Person or (ii) any officer, director or controlling shareholder of
such other Person. 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) without limiting the foregoing, the beneficial
ownership of 10% or more of the voting power of the voting common
equity of such Person (on a fully diluted basis) or of warrants or
other rights to acquire such equity (regardless of whether
presently exercisable). Notwithstanding the foregoing, none of the
Purchasers shall be deemed to be "Affiliates" of the Company or any
of its Subsidiaries.
(c) The definition of "Capital Improvement Program" is hereby amended
to read in its entirety as follows:
"Capital Improvement Program" means the expansion and
improvement program at the Company (or, after the Transaction
Closing Date, TransContinental).
(d) The definition of "CATOFIN(R) Unit" is hereby amended to read in
its entirety as follows:
"CATOFIN(R) Unit" means certain real property owned by the
Company before the Transaction Closing Date as more specifically
defined in the security documents relating to the TEC Notes,
together with all personal property of TransContinental 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.
(e) The definition of "Change of Control" is hereby deleted in its
entirety.
(f) The definition of "Consolidated Fixed Charge Coverage Ratio" is
hereby amended to read in its entirety as follows:
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<PAGE> 4
"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) (x) with respect to any Person other
than TCR Holding, 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 or
(y) with respect to TCR Holding, the aggregate amount of dividends
and other distributions on the Capital Stock of TransContinental
received by TCR Holding from TransContinental during the Reference
Period to (ii) the aggregate Consolidated Fixed Charges 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, (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.
(g) The definitions of "Construction Supervisor" and "Debt" are hereby
amended to read in their entirety as follows:
"Construction Supervisor" means Baker & O'Brien, Inc., as
construction supervisor of the Capital Improvement Program or any
successor construction supervisor appointed by TEC with the
approval of TCR Holding, which approval shall not be unreasonably
withheld.
"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 or representing the balance
deferred and unpaid of the purchase price of any property acquired
by such Person or services received by such Person (other than
long-term services or supply contracts which required minimum
periodic payments), (c) evidenced by bankers' acceptances or
similar instruments issued or accepted by banks or Swap
Obligations, (d) for the payment of money relating to a Capitalized
Lease Obligation, (e) the Attributable Debt associated with any
Sale and Leaseback Transaction or (f) Dollar-
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<PAGE> 5
Denominated Production Payments that TransTexas or any of its
Subsidiaries elect to treat as Debt (excluding all other Permitted
Production Payment Obligations); (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.
Notwithstanding anything to the contrary contained herein, for
purposes of Section 4.11, notes issued in satisfaction of the
interest obligation on up to $150 million principal amount of 15%
Senior Secured Notes due 2003 issued pursuant to the Transaction in
accordance with the terms thereof shall not constitute Debt except
for purposes of the third to last and second to last paragraphs of
Section 4.11.
(h) The definition of "Disqualified Capital Stock" is hereby amended to
read in its entirety as follows:
"Disqualified Capital Stock" means, with respect to any
Person, any Capital Stock of such Person or its Subsidiaries that,
by its 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.
(i) The definition of "Gas Purchase Agreement" is hereby amended to
read in its entirety as follows:
"Gas Purchase Agreement" means the Interruptible Gas Sales
Terms and Conditions between the Company and TransTexas, as in
effect on the Series A/B Issue Date and as amended from time to
time, provided that any such amendment is approved by the Board of
Directors of each of the parties thereto.
(j) The definition of "Insurance Proceeds" is hereby amended to read in
its entirety as follows:
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<PAGE> 6
"Insurance Proceeds" means the interest in and to all proceeds
(net of costs of collection, including attorney's fees) which now
or hereafter may be paid under any insurance policies now or
hereafter obtained by or on behalf of the Company, TEC, TCR
Holding, TransContinental, TransTexas, or any Guarantor in
connection with any assets thereof, together with interest payable
thereon and the right to collect and receive the same, including,
without limitation, proceeds of casualty insurance, title
insurance, business interruption insurance and any other insurance
now or hereafter maintained with respect to such assets.
(k) The definition of "Permitted Investment" is hereby amended to read
in its entirety as follows:
"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 any of the TARC Entities or any
of the TCR Holding Entities in any of the TCR Holding Entities or
in TransContinental and Investments by any of the TCR Holding
Entities in any of the TARC Entities; (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 the Company
in an aggregate amount not in excess of $10,000,000 since the
Series A/B/ Issue Date (net of returns on investment) plus the
assets comprising the CATOFIN(R) Unit owned by the Company 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 Subsidiary Notes by any of the TARC
Entities or any of the TCR Holding Entities in amounts not to
exceed the greater of $20 million or 20% of the TransContinental
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 since the Series
A/B Issue Date; (xii) Investments by the Company or any of its
wholly owned Subsidiaries in an aggregate amount not to exceed
$250,000 since the Series A/B Issue Date, 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 Section 4.11; (xiv)
deposits permitted by the definition of "Permitted Liens" or any
extension, renewal, or replacement 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,
(xvii) Investments in money market mutual or similar funds having
assets in excess of $100,000,000 and (xviii)
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<PAGE> 7
the purchase or other acquisition by TARC, TCR Holding and their
Subsidiaries of TEC Notes or by TCR Holding and its Subsidiaries of
Notes or Series A/B Notes.
(l) The definition of "Permitted Liens" is hereby amended to read in
its entirety as follows:
"Permitted Liens" means (a) Liens imposed by governmental
authorities for taxes, assessments, or other charges not yet due or
which are being contested in good faith and by 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; (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 Series A/B 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 operations
of such New Property, (ii) the principal amount of the Debt secured
by such Lien does not exceed 100% of such costs 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
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<PAGE> 8
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 and Liens encumbering contract rights under
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 the Company or TCR Holding; (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 Section 4.11; 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 secure Senior Debt; (v) Liens
on any property of the Company or its Subsidiaries (or any
agreement to grant such Liens) securing the Series A/B Notes or the
Notes, (w) Liens on any Property owned by TransContinental and (x)
Liens on any Property owned by the Company or TCR Holding to secure
Debt permitted by clause (s) of Section 4.11.
(m) The definition of "Phase I Completion Date" is hereby amended to
read in its entirety as follows:
"Phase I Completion Date" means the date on which the
Construction Supervisor issues a written notice (the "Phase I
Completion Notice") to TEC certifying that the Phase I Performance
Test has been completed.
(n) A definition of "Phase I Performance Test " is hereby added to the
Original Indenture to read in its entirety as follows:
"Phase I Performance Test" means for a period of at least 72
uninterrupted hours, TransContinental's refinery has sustained (i)
an average feedstock throughput level of at least 150,000 barrels
per day and (ii) 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.
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<PAGE> 9
(o) The definition of "Phase II Completion Date" is hereby amended to
read in its entirety as follows:
"Phase II Completion Date" means the date on which the
Construction Supervisor issues a written notice (the "Phase II
Completion Notice") to TEC certifying that for a period of at least
72 uninterrupted hours, TransContinental's refinery has sustained
(i) an average feedstock throughput level of at least 180,000
barrels per day and (ii) 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 60%, when using a
combined Crude Unit feedstock slate with an average API Gravity of
22 degrees or less.
(p) The definition of "Plans" is hereby amended to read in its entirety
as follows:
"Plans" means (a) the plans and specifications prepared by or
on behalf of the Company (or, after the Transaction Closing Date,
TransContinental), which describe and show the proposed expansion
and modification of the Company's (or, after the Transaction
Closing Date, TransContinental's) refinery as amended from time to
time with the consent of the Construction Supervisor and (b) a
budget prepared by or on behalf of the Company (or, after the
Transaction Closing Date, TransContinental) as amended from time to
time with the consent of the Construction Supervisor.
(q) A definition of "Purchasers" is hereby added to the Original
Indenture to read in its entirety as follows:
"Purchasers" means the initial purchasers from TARC pursuant
to the Transaction of voting stock of TCR Holding and their
transferees and Affiliates (in each case other than the Company and
its Subsidiaries).
(r) A definition of "Refinery Assets" is hereby added to the Original
Indenture to read in its entirety as follows:
"Refinery Assets" means substantially all of the assets of
TARC immediately prior to the Transaction Closing Date.
(s) The definition of "Related Persons" is hereby amended to read in
its entirety as follows:
"Related Person" means (i) any Person (other than a Purchaser
or TransContinental and any of its Subsidiaries) 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
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<PAGE> 10
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).
(t) The definition of "Restricted Payment" is hereby amended to read in
its entirety as follows:
"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 TCR Holding or
from any of the Company's Subsidiaries or to TCR Holding by any of
TCR Holding's 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 Services Agreement, the Expense Reimbursement
Agreement, the Office Leases, the Transfer Agreement 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 clauses (o), (s) and (u) 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 the Company or TCR Holding of shares of
Capital Stock of the Company, TCR Holding, TransContinental,
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,
with respect to the issuer, not to exceed 7% of the aggregate
number of shares of voting stock held by nonaffiliates of the
issuer measured from the date of the first such purchase, (viii)
distributions of common stock of TransTexas to TEC, (ix) any
dividend or other distribution on the Capital Stock of any
Subsidiary of the Company, (x) any purchase of Capital Stock of TCR
Holding by the Company, (xi) any purchase of Capital Stock of
TransContinental by TCR Holding, (xii) any dividend or payment on
shares of Capital Stock of TCR Holding the proceeds of the issuance
of which are used to purchase TEC Notes and (xiii) the TCR Holding
Participating Preferred Stock Redemption.
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<PAGE> 11
(u) The definition of "Senior Debt" is hereby amended to read in its
entirety as follows:
"Senior Debt" means, all Debt of the Company or, with respect
to its use in the definition of "Permitted Liens" only, TCR
Holding, including, without limitation, the TARC Discount Notes,
the TARC Mortgage Notes, the TARC Working Capital Loan 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 Series A/B Notes and
the Notes, (ii) Debt of the Company to any Subsidiary of the
Company or to any Unrestricted Subsidiary of the Company (other
than to facilitate the purchase of the common stock purchase
warrants of TARC), 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.
(v) The definition of "Services Agreement" is hereby amended to read in
its entirety as follows:
"Services Agreement" means the Services Agreement among TNGC
Holdings and its Subsidiaries, as in effect on the Series A/B Issue
Date and as amended from time to time, provided that any such
amendment is approved by the Board of Directors of each of the
parties thereto that will be bound by such amendment.
(w) The definition of "Subsidiary" is hereby amended to read in its
entirety as follows:
"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 Indenture provisions "Subsidiary Guarantees," 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; provided,
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<PAGE> 12
further, however, that TCR Holding and its subsidiaries other than
TransContinental shall be "Subsidiaries" of TARC (except for
purposes of Section 4.16) and TransContinental shall not be a
"Subsidiary" of any Person.
(x) The definition of "TARC Intercompany Loan" is hereby amended to
read in its entirety as follows:
"TARC Intercompany Loan" means the senior secured promissory
note from the Company to TEC in the fully accreted principal amount
of $920,000,000 upon substantially the terms described in the
Registration Statement on Form S-4, as amended, of TEC under the
heading "Description of Existing Indebtedness -- TARC Intercompany
Loan" and as amended from time to time in accordance with its
terms.
(y) A definition of "TARC Intercompany Loan Amendment" is hereby added
to the Original Indenture to read in its entirety as follows:
"TARC Intercompany Loan Amendment" means the second amendment
to the TARC Intercompany Loan Agreement upon substantially the
terms described in the form attached hereto as Exhibit C.
(z) A definition of "TransContinental" is hereby added to the Original
Indenture to read in its entirety as follows:
"TransContinental" means TransContinental Refining
Corporation, a Delaware corporation, to which the Refinery Assets
will be transferred by TCR Holding pursuant to the Transaction and,
for purposes of Section 4.11 hereof, its Subsidiaries.
(aa) The definition of "TARC Borrowing Base" is hereby amended to read
in its entirety as follows:
"TransContinental 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 TransContinental 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 TransContinental 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, TransContinental may utilize, to the extent
reasonable, the most recent available information for purposes of
calculating the TransContinental Borrowing Base.
(bb) A definition of "TCR Holding" is hereby added to the Original
Indenture to read in its entirety as follows:
"TCR Holding" means TCR Holding Corporation, a Delaware
corporation, to which the Refinery Assets will be transferred by
TARC pursuant to the Transaction.
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<PAGE> 13
(cc) A definition of "TCR Holding Entities" is hereby added to the
Original Indenture to read in its entirety as follows:
"TCR Holding Entities" means TCR Holding and each of its
Subsidiaries.
(dd) A definition of "TCR Holding Participating Preferred Stock" is
hereby added to the Original Indenture to read in its entirety as
follows:
"TCR Holding Participating Preferred Stock" means the
participating preferred stock of TCR Holding issued pursuant to the
Transaction.
(ee) A definition of "TCR Holding Participating Preferred Stock
Redemption" is hereby added to the Original Indenture to read in its
entirety as follows:
"TCR Holding Participating Preferred Stock Redemption" means
the redemption by TCR Holding of the TCR Holding Participating
Preferred Stock in exchange for (i) debt securities of TCR Holding
with an aggregate principal amount equal to the liquidation
preference of the TCR Holding Participating Preferred Stock, with a
maturity date of June 1, 2002 and bearing interest at a rate
sufficient to pay interest on the TARC Intercompany Loan, the Notes
and the Series C/D Notes and (ii) common stock of TCR Holding equal
to 30.6% of the equity interest in TCR Holding and 41% of the
voting power of TCR Holding's capital stock.
(ff) A definition of "TARC Intercompany Subordinated Note" is hereby
added to the Original Indenture to read in its entirety as follows:
"TARC Intercompany Subordinated Note" means that certain note
and related documents (i) evidencing debt of TCR Holding to TARC in
an amount and with principal and interest payment terms sufficient
to service the payment of interest and principal on the Notes and
the Series A/B Notes (after giving effect to any amounts in any
Interest Reserve Account) and (ii) containing a covenant of TCR
Holding to pledge the stock it owns of TransContinental, if any, as
of the date of the payment in full of the TARC Intercompany Loan;
provided, that TCR Holding 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 TCR Holding 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 amount of such Other
Debt) is equal to or less than the 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.
(gg) A definition of "TARC Working Capital Loan" is hereby added to the
Original Indenture to read in its entirety as follows:
"TARC Working Capital Loan" means a loan by TEC to TARC of up
to $50 million, which will be assumed by TCR Holding pursuant to
the Transaction.
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<PAGE> 14
(hh) The definition of "Tax Allocation Agreement" is hereby amended to
read in its entirety as follows:
"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 approved by the Board of
Directors of each of the parties thereto that will be bound by such
amendment.
(ii) A definition of "Transaction" is hereby added to the Original
Indenture to read in its entirety as follows:
"Transaction" means a series of related transactions (as more
fully described in the Company's Consent Solicitation Statement
dated October 5, 1998, as amended, pursuant to which consents were
solicited from the Holders to amendments to the Indenture to
facilitate the Transaction, which description is incorporated
herein by reference) pursuant to which, among other things, (i) the
Lien on the TARC Collateral (as defined in the TEC Indenture) is
released, (ii) TARC transfers to TCR Holding the Refinery Assets in
exchange for (x) all of the capital stock of TCR Holding and (y)
the assumption by TCR Holding of certain debt and other obligations
of TARC, (iii) TCR Holding transfers to TransContinental the
Refinery Assets in exchange for all of the common stock of
TransContinental and TransContinental assumes the debt and other
obligations of TARC assumed by TCR Holding other than the TARC
Working Capital Loan and (iv) certain Purchasers purchase (x) debt
securities issued by TARC, (y) equity securities issued by
TransContinental and (z) TCR Holding Capital Stock from TARC for
aggregate gross proceeds of approximately $151 million.
(jj) A definition of "Transaction Closing Date" is hereby added to the
Original Indenture to read in its entirety as follows:
"Transaction Closing Date" means the date the Refinery Assets
are transferred by TARC to TCR Holding and by TCR Holding to
TransContinental pursuant to the Transaction.
(kk) The definition of "Unrestricted Non-Recourse Debt" is hereby
amended to read in its entirety as follows:
"Unrestricted Non-Recourse Debt" of the Company,
TransContinental or any of the Subsidiaries of the Company 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
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<PAGE> 15
Subsidiaries of such Person, does not exceed (x) 20% of the
Company's Consolidated EBITDA since the Phase II Completion Date in
the case of the Company, (y) 20% of TCR Holding's Consolidated
EBITDA since the Phase II Completion Date in the case of TCR
Holding or (z) 20% of TransContinental's Consolidated EBITDA since
the Phase II Completion Date in the case of TransContinental plus
in the case of clause (ii) of this definition of Unrestricted
Non-Recourse Debt, Restricted Payments permitted to be made
pursuant to Section 4.3.
Section 1.02. Section 4.3 of the Original Indenture. Section 4.3 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 4.3 Limitation on Restricted Payments. The Company
shall not, and shall not permit any of its Subsidiaries to,
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 Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any Restricted
Payment; provided, however, that the Company or TCR Holding 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:
(i) in the case of Restricted Payments by the Company:
(a) the Company'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 Series A/B 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 the Company accrued for the period (taken as one accounting
period) from the first full fiscal quarter that commenced
after the Series A/B Issue Date to and including the fiscal
quarter ended immediately prior to the date of each
calculation for which financial statements are available (or,
if the Company's Adjusted Consolidated Net Income for such
period is a deficit, then minus 100% of such deficit), plus
(y) the aggregate Net Proceeds received by the Company from
the issuance or sale (other than to a Subsidiary of the
Company) of its Qualified Capital Stock from and after the
Series A/B 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 the Company's Adjusted Consolidated Net Income during such
period; and
(ii) in the case of Restricted Payments by TCR Holding:
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<PAGE> 16
(a) TCR Holding'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 TCR Holding 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 Transaction Closing Date and on
or prior to the date of such Restricted Payment, would not
exceed an amount equal to the sum of (w) $1,000,000, plus (x)
50% of Adjusted Consolidated Net Income of TCR Holding accrued
for the period (taken as one accounting period) from the first
full fiscal quarter that commenced after the Transaction
Closing Date to and including the fiscal quarter ended
immediately prior to the date of each calculation for which
financial statements are available (or, if TCR Holding'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 TCR Holding from the issuance or sale
(other than to a Subsidiary of TCR Holding) of its Qualified
Capital Stock from and after the Transaction Closing 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 TCR Holding's Adjusted
Consolidated Net Income during such period;
provided, that nothing in this Section 4.3 shall prohibit the payment
of any dividend within 60 days after the date of its declaration if
such dividend could have been made on the date of its declaration in
compliance with the foregoing provisions.
Section 1.03. Section 4.7 of the Original Indenture. Section 4.7(d) of
the Original Indenture is hereby deleted in its entirety.
Section 1.04. Section 4.8 of the Original Indenture. Section 4.8 of the
Original Indenture is hereby amended to read as follows:
Section 4.8 SEC Reports. The Company shall deliver to the
Trustee and each Holder, within 15 days after it files the same
with the SEC, copies of all reports and information (or copies of
such portions of any of the foregoing as the SEC may by rules and
regulations prescribe), if any, which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. The Company shall include in all such reports and information
a summary of the status of the Company's Capital Improvement
Program, including a description of sources of funds available for
the completion of the Capital Improvements Program. The Company
agrees to continue to be subject to and comply with 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
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<PAGE> 17
preceding paragraph. The Company shall also comply with the other
provisions of TIA Section 314(a).
The Company shall, upon request, provide to each Holder and to
each beneficial owner and prospective purchaser of Notes identified
by any Holder of Restricted Notes the information required by
clause (d)(4) of Rule 144A until the earlier to occur of (i) there
existing no further necessity for an offer or sale of the Notes to
qualify for an exemption under such Rule or (ii) the consummation
of a registered exchange offer for the Notes.
Section 1.05. Section 4.10 of the Original Indenture. Section 4.10 of
the Original Indenture is hereby amended as follows:
(a) Section 4.10(a) of the Original Indenture is hereby amended to read
in its entirety as follows:
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, enter directly or indirectly into, or permit to
exist, any transaction or series of related transactions with any
Related Person (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 property,
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), (xi), (xii), (xvi)
and (xviii) of the definition of "Permitted Investment"), 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) 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 between Wholly Owned Subsidiaries of the
Company; (D) transactions pursuant to the Services Agreement, the
Tax Allocation Agreement, the Gas Purchase Agreement, and the
Expense Reimbursement Agreement, in each case including amendments
thereto that are approved by the Board of Directors of each of the
parties thereto that will be bound by such amendments, and the
Transfer Agreement, the TARC Intercompany Loan and related security
documents, and the Registration Rights Agreement; (E) the lease of
office space to the Company or an Affiliate of 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 $5,000,000 in any fiscal year of
the Company or any Subsidiary and which has been approved by a
majority of the Company's Independent 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 the Company
and TCR Holding which are permitted to be Incurred pursuant to the
terms of Section 4.11; (H) the amounts payable by the TEC and its
Subsidiaries to Southeast Contractors for employee services
provided to the Company or
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<PAGE> 18
TransContinental 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 $2,000,000 per year in the
aggregate; (I) the Company and its Subsidiaries may pay a
management fee to TransAmerican in an amount not to exceed
$2,500,000 per year; (J) transactions effected pursuant to the
Transaction, including without limitation (i) the execution,
delivery and performance of the TARC Intercompany Loan Amendment,
the TCR Holding Pledge Agreement, an amendment of the Services
Agreement and a Securities Purchase Agreement among TARC, TCR
Holding, TransContinental, TEC and certain of the Purchasers
providing for the sale to such Purchasers of Capital Stock of TCR
Holding owned by TARC pursuant to the Transaction, (ii) the
transfer of the Refinery Assets by TARC to TCR Holding and, as
consideration therefor, the issuance by TCR Holding to TARC of
Capital Stock of TCR Holding, the assumption by TCR Holding of
certain debt and obligations of TARC (including Debt of TARC to the
Purchasers and certain others), and (iii) the transfer of the
Refinery Assets by TCR Holding to TransContinental and, as
consideration therefor, the issuance by TransContinental of its
common stock to TCR Holding and the assumption by TransContinental
of certain debt and obligations of TCR Holding; (K) the delivery of
TEC Notes to TEC in satisfaction of the TARC Intercompany Loan; (L)
the issuance and sale of the TCR Holding Participating Preferred
Stock; (M) the TCR Holding Participating Preferred Stock
Redemption; and (N) transactions between or among TCR Holding or
TransContinental and any of their respective Related Persons,
provided such transaction is approved by the Board of Directors of
each of the parties thereto.
(b) Section 4.10(b) of the Original Indenture is hereby amended to read
in its entirety as follows:
(b) Without limiting the foregoing, except for sales of
accounts receivable to an Accounts Receivable Subsidiary in
accordance with Section 4.20, (i) 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), (G), (J),
(K), (L), (M) or (N) of Section 4.10(a)) with an aggregate value in
excess of $5,000,000, 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 (x) fair and reasonable to the Company or such
Subsidiary, as the case may be, and (y) 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 (ii) 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), (G),
(J), (K), (L), (M) or (N) of Section 4.10(a)) with an aggregate
value in excess of $10,000,000, 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 nationally recognized investment
banking or accounting firm; provided that such opinion
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<PAGE> 19
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.
Section 1.06. Section 4.11 of the Original Indenture. Section 4.11 of
the Original Indenture is hereby amended as follows:
(a) The first paragraph of Section 4.11 of the Original Indenture is
hereby amended to read in its entirety as follows:
Section 4.11 Limitation on Incurrences of Additional Debt and
Issuances of Disqualified Capital Stock. Except as set forth in
this Section 4.11, from and after the Issue Date, the Company shall
not, and shall not permit TransContinental or any of the Company's
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 in an aggregate amount
not to exceed $200 million in proceeds to the Company less the
aggregate amount of proceeds to the Company pursuant to Debt
incurred under clause (p) below; (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 of 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 Section 4.14 hereof; (c) Subordinated Debt of the
Company solely to any wholly owned Subsidiary of the Company, Debt
of TCR Holding solely to TransContinental or any wholly owned
Subsidiary of TCR Holding, Debt or Disqualified Capital Stock of
TCR Holding to TARC, Debt of any wholly owned Subsidiary of the
Company solely to the Company or to any wholly owned Subsidiary of
the Company or Debt of TransContinental or any wholly owned
Subsidiary of TCR Holding solely to TCR Holding or to any wholly
owned Subsidiary of TCR Holding; (d) Debt of TransContinental
outstanding at any time in an aggregate principal amount not to
exceed the greater of (x) $100 million or (y) the TransContinental
Borrowing Base, less, in each case, the amount of any Debt of an
Accounts Receivable Subsidiary (other than Debt owed to the Company
or TransContinental); (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) or (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 incurred pursuant to
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
Obligation; (j) Unrestricted Non-Recourse Debt; (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 the Company or any of its Subsidiaries
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<PAGE> 20
or TransContinental owed to TEC which is loaned pursuant to terms
of the fourth paragraph of either of the covenants contained 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) each of the Company, its Subsidiaries and
TransContinental may Incur Debt as an extension, renewal,
replacement, or refunding of any item of the Debt permitted to be
Incurred by clauses (b), (p), (r), (v), (w) or (x) hereof, or this
clause (o) (each such item of Debt is referred to as "Refinancing
Debt"), provided, that (1) the maximum principal amount of each
item of Refinancing Debt (or, if such 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 item of Debt being
extended, renewed, replaced, or refunded plus Refinancing Fees or
(y) if such item of 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 and (2) each item of Refinancing Debt shall rank with respect
to the Notes to an extent no less favorable in respect thereof to
the Holders than the related Debt being refinanced; (p) Pari Passu
Debt or Subordinated Debt of the Company or TCR Holding with
initial net proceeds to the Company not in excess of $25 million in
the aggregate less the aggregate amount of proceeds to the Company
pursuant to Debt incurred under clause (a) above after the Issue
Date; (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 TransContinental Incurred in
connection with the acquisition, construction or improvement of a
CATOFIN(R) Unit not in excess of 20% of TransContinental'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, (s) Debt of TARC, TCR Holding or TransContinental with
an aggregate principal amount outstanding at any one time of up to
$225 million, (t) Debt of TARC (other than Debt secured by Storage
Assets in the initial aggregate principal amount of $36 million)
that is assumed by TCR Holding or TransContinental in connection
with the Transaction, (u) Debt of TCR Holding with an aggregate
principal amount outstanding at any one time not in excess of $200
million, (v) Debt of TCR Holding (other than Debt incurred pursuant
to clause (s) above) that is assumed by TransContinental in
connection with the Transaction, (w) Disqualified Capital Stock of
TCR Holding or TransContinental or unsecured Debt of TCR Holding or
unsecured or secured Debt of TransContinental, (1) the proceeds of
which are used to repurchase TEC Notes or (2) that is exchanged for
TEC Notes, (x) Debt or Disqualified Capital Stock of TCR Holding or
TransContinental that is used to refinance or replace the TARC
Intercompany Loan and (y) Debt of the Company, TCR Holding or
TransContinental owed to TEC that does not in the aggregate exceed
$50 million principal amount outstanding at any one time.
(a) The third to last and second to last paragraph of Section 4.11 of
the Original Indenture is hereby amended to read in its entirety as
follows:
Notwithstanding the foregoing provisions of this covenant, (a)
the Company, TCR Holding and TransContinental may Incur Senior Debt
and the Company, TCR Holding and TransContinental 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
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<PAGE> 21
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 the entity incurring such Debt for the Reference Period is
greater than 2.25 to 1, and (b) the Company, TCR Holding and
TransContinental 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 the entity incurring such Debt 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 the Company, TCR Holding or
TransContinental, 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 the Company,
TCR Holding or TransContinental or one of their 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 the Company, TCR
Holding or TransContinental, respectively, or one of their
respective Subsidiaries.
Section 1.07. Section 4.12 of the Original Indenture. Section 4.12 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.12 Limitations on Restricting Subsidiary Dividends.
The Company shall not, and shall not permit any of its Subsidiaries
(other than TCR Holding) to, directly or indirectly, create,
assume, or suffer to exist any consensual encumbrance or
restriction on the ability of any Subsidiary of the Company (other
than TCR Holding) 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. Notwithstanding anything
contained herein to the contrary, neither the Company nor TCR
Holding may create an encumbrance or restriction on their ability
to pay premium, if any, principal of, or interest on, the TARC
Intercompany Loan.
Section 1.08. Section 4.13 of the Original Indenture. Section 4.13 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.13 Liens. The Company shall not, and shall not
permit any of its Subsidiaries 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
Permitted Liens. Notwithstanding anything in this Indenture to the
contrary, (i) TARC shall
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<PAGE> 22
not, directly or indirectly, Incur or suffer to exist any Lien on
the Capital Stock of TCR Holding owned by it (other than a Lien to
secure the TARC Intercompany Loan), (ii) TCR Holding may incur a
Lien on Capital Stock of TransContinental to secure the TARC
Working Capital Loan and (iii) TransContinental shall not be bound
by this Section 4.13. For the purpose of determining compliance
with this Section 4.13, 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.
Section 1.09. Section 4.14 of the Original Indenture. Section 4.14 of
the Original Indenture is hereby amended to read in its entirety as follows:
Section 4.14 Limitation on Asset Sales. Intentionally
Omitted.
Section 1.10. Section 4.18 of the Original Indenture. Section 4.18 of
the Original Indenture is hereby amended to read as follows:
Section 4.18 Limitations on Line of Business. The Company shall not
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 or
incidental thereto. The Company shall not permit TransContinental
directly or indirectly to engage to any substantial extent in any
line or lines of business activity other than a Related Business or
such other business activities as are reasonably related or
incidental thereto.
Section 1.11. Section 4.20 of the Original Indenture. Section 4.20(a)
of the Original Indenture is hereby amended to read as follows:
(a) Notwithstanding the provisions of Section 4.3, the Company
may, and may permit any of its Subsidiaries to, make Investments in
an Accounts Receivable Subsidiary (i) the proceeds of which are
applied within five Business Days of the making thereof solely to
finance the purchase of accounts receivable of the Company and its
Subsidiaries and (ii) in the form of Accounts Receivable Subsidiary
Notes to the extent permitted by clause (b) below; provided that
the aggregate amount of such Investments shall not exceed the
greater of $20 million or 20% of the TransContinental Borrowing
Base at any time;
Section 1.12. Section 4.23 of the Original Indenture. Section 4.23 of
the Original Indenture is hereby deleted.
Section 1.13. Sections 4.23 and 4.24 of the Original Indenture. New
Sections 4.23 and 4.24 are hereby added to the Original Indenture to follow
Section 4.22 to read in their entirety as follows:
Section 4.23 Monthly Status Reports. The Company shall cause
TransContinental to, (A) not later than the 20th day of each month
(or, if such day is not a Business Day, then the first Business Day
following such day), commencing in December 1998 and continuing
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<PAGE> 23
through the Phase II Completion Date, issue a press release (and,
if applicable, file a copy thereof with the SEC pursuant to a Form
8-K Current Report) generally disclosing the status of completion
of the Capital Improvement Program through the end of the
immediately preceding month and (B) conduct a monthly telephone
conference call relating thereto with the chief executive officer
of TARC or his designee in which Holders will be entitled to
participate and provide notice by press release of the time and
place of such call at least 48 hours in advance thereof.
Section 4.24 Limitation on Issuances of Equity Securities by
TCR Holding or TransContinental. The Company shall not permit TCR
Holding, TransContinental or any Subsidiary of either of them to
issue (other than pursuant to the Transaction, including securities
issued upon conversion of or in exchange for securities issued
pursuant to the Transaction upon the terms established in
connection with the Transaction, or issuances to TransContinental
or any of its Subsidiaries) any Capital Stock or other equity
securities (other than Disqualified Capital Stock that is not
convertible into or exchangeable for Qualified Capital Stock and
other equity securities that are not accounted for as equity
securities in accordance with GAAP) unless the issuer first obtains
a favorable written opinion as to the fairness of such transaction
to the issuer, from a financial point of view, from an independent
nationally recognized accounting or investment banking firm.
Section 1.14. Section 5.1 of the Original Indenture. Section 5.1 of the
Original Indenture is hereby amended to add subsection (d) to read in its
entirety as follows:
(d) Notwithstanding anything contained in this Article V to
the contrary, (i) the provisions of clause (a) shall not apply to
the transfer by TARC to TCR Holding of the Refinery Assets as part
of the Transaction, (ii) the provisions of clause (a) shall not
apply to the transfer to TransContinental by TCR Holding of the
Refinery Assets as part of the Transaction and (iii) the provisions
of clauses (a)(2), (a)(3) and (a)(5) shall not apply to a merger of
TARC with or into TEC.
Section 1.15. Section 5.2 of the Original Indenture. Section 5.2 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 5.2 Successor Corporation Substituted. Upon any
consolidation or merger, or any transfer of assets in accordance
with Section 5.1 (other than the transfers of the Refinery Assets
by the Company to TCR Holding and by TCR Holding to
TransContinental pursuant to the Transaction), the Surviving Person
formed by such consolidation or into which the Company, or a
Guarantor, as the case may be, 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, or such Guarantor, as the
case may be, under this Indenture with the same effect as if such
Surviving Person had been named as the Company, or such Guarantor,
as the case may be, herein. When a Surviving Person duly assumes
all of the obligations of the Company pursuant hereto and pursuant
to the Notes, the predecessor shall be released from such
obligations.
Section 1.16. Section 6.1 of the Original Indenture. Section 6.1(d) of
the Original Indenture is hereby amended to read in its entirety as follows:
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<PAGE> 24
(d) a default which extends beyond any stated period of grace
applicable thereto, including any extension thereof, under any
mortgage, indenture or instrument under which there is outstanding
any Debt of the Company, any of its Subsidiaries or
TransContinental with an aggregate principal amount in excess of
$20,000,000 if by reason of such default the principal of such Debt
and all accrued and unpaid interest thereon has been declared due
and payable, or failure to pay such Debt at its stated maturity, 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, forebearance or
notice period; provided that a waiver by the lenders of such Debt
of such default 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 or acceleration continues for a period of 10 days;
provided, that a rescission 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.
Section 1.17. Section 9.1 of the Original Indenture. Section 9.1 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 9.1 Supplemental Indentures Without Consent of
Holders. Without the consent of any Holder, the Company and the
Guarantors, if any, when authorized by Board Resolutions, and the
Trustee, at any time and from time to time, may enter into one or
more indentures supplemental hereto or a restatement hereof in form
satisfactory to the Trustee, for any of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency, or to
make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture, provided such action pursuant to
this clause (a) shall not adversely affect the interests of any
Holder in any respect;
(b) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred
upon the Company or to make any other change that does not
adversely affect the rights of any Holder, provided that the
Company has delivered to the Trustee an Opinion of Counsel stating
that such change does not adversely affect the rights of any
Holder;
(c) to evidence the succession of another Person to the
Company and the assumption by any such successor of the obligations
of the Company herein and in the Notes in accordance with Article
V;
(d) to comply with the TIA; or
(e) to restate this Indenture so that it reflects this
Indenture as originally executed as amended by all amendments and
supplements hereto through the date of such restatement and
contains only the then effective provisions of this Indenture.
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<PAGE> 25
Section 1.18. Section 9.6 of the Original Indenture. Section 9.6 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 9.6 Trustee to Sign Amendments, Etc. The Trustee shall
execute any amendment, supplement, restatement or waiver authorized
pursuant to this Article IX, provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement,
restatement or waiver which affects the Trustee's own rights,
duties or immunities under this Indenture. The Trustee at the
expense of the Company shall be entitled to receive, and shall be
fully protected in relying upon, an Opinion of Counsel stating that
the execution of any amendment, supplement, restatement or waiver
authorized pursuant to this Article IX is authorized or permitted
by this Indenture.
Section 1.19. Article XI of the Original Indenture. Article XI of the
Original Indenture is hereby amended to read in its entirety as follows:
ARTICLE XI
RIGHT TO REPURCHASE
INTENTIONALLY OMITTED
ARTICLE II
GENERAL PROVISIONS
Section 2.01. Effectiveness of Amendments. This Supplemental Indenture
is effective as of the date first above written. However, the provisions of the
Original Indenture amended or eliminated as provided in this Supplemental
Indenture (the "Amended Provisions") shall remain operative in the form in which
they exist in the Original Indenture until the Transaction Closing Date,
whereupon the Amended Provisions will be amended or eliminated as provided
herein, effective immediately prior to the Transaction Closing Date.
Section 2.02. Ratification of Indenture. The Original Indenture is in
all respects acknowledged, ratified and confirmed, and shall continue in full
force and effect in accordance with the terms thereof and as supplemented by
this Supplemental Indenture. The Original Indenture and this Supplemental
Indenture, shall be read, taken and construed as one and the same instrument.
Section 2.03. Certificate and Opinion as to Conditions Precedent.
Simultaneously with and as a condition to the execution of this Supplemental
Indenture, the Company is delivering to the Trustee:
(a) an Officers' Certificate in the form attached hereto as
Exhibit A; and
(b) an Opinion of Counsel covering the matters described in
Exhibit B attached hereto.
Section 2.04. Effect of Headings. The Article and Section headings in
this Supplemental Indenture are for convenience only and shall not affect the
construction of this Supplemental Indenture.
Section 2.05. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
AS
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<PAGE> 26
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 2.06. Counterparts. This Supplemental Indenture may be executed
in any number if counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute the same
instrument.
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<PAGE> 27
IN WITNESS WHEREOF, the parties to this Supplemental Indenture have
caused the Supplemental Indenture to be duly executed, and their respective
corporate seals to be hereunto affixed and attached, on and effective as of day
and year first above written.
TRANSAMERICAN REFINING CORPORATION,
A Texas corporation
Attest: By:
------------------------ -------------------------------------
Ann F. Gullion, Name:
Assistant Secretary Title:
FIRST UNION NATIONAL BANK,
As Trustee
By:
-------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 4.34
- --------------------------------------------------------------------------------
TRANSAMERICAN ENERGY CORPORATION
AND
TRANSAMERICAN REFINING CORPORATION
------------------------
SECOND AMENDMENT TO LOAN AGREEMENT
Dated as of November 13, 1998
--------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement (this "Second Amendment") made
as of November 13, 1998, by and between TransAmerican Energy Corporation, a
Delaware corporation ("TEC"), and TransAmerican Refining Corporation, a Texas
corporation ("TARC");
W I T N E S S E T H:
WHEREAS, TEC and Firstar Bank of Minnesota, N.A., as Trustee, have
entered into an Indenture dated as of June 13, 1997 (as supplemented, the
"Indenture"), pursuant to which TEC issued $475,000,000 aggregate principal
amount of its 11 1/2% Senior Secured Notes due 2002 and $1,130,000,000 aggregate
principal amount of its 13% Senior Secured Discount Notes due 2002
(collectively, the "Notes"); and
WHEREAS, TEC and TARC have entered into a Loan Agreement dated as of
June 13, 1997, as amended by a First Amendment to Loan Agreement dated as of
December 30, 1997 (the "TARC Intercompany Loan Agreement"), pursuant to which
TEC agreed to loan to TARC an aggregate of $675,648,920 out of the proceeds of
the issuance of the Notes; and
WHEREAS, TEC and TARC have agreed to certain amendments to the TARC
Intercompany Loan Agreement as hereinafter set forth (the "Proposed
Amendments"); and
WHEREAS, pursuant to Section 9.2 of the Indenture, the holders of not
less than 66-2/3% in aggregate Value (as defined in the Indenture) of the Notes
have consented to the Proposed Amendments to the TARC Intercompany Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Second
Amendment hereby agree as follows:
ARTICLE I
AMENDMENTS TO THE TARC INTERCOMPANY LOAN AGREEMENT
Section 1.01. Amended Definitions. The following definitions in Section
1.1 of the TARC Intercompany Loan Agreement are hereby amended as follows:
(a) A definition of "Bridge Financing Transaction" is hereby added to
the TARC Intercompany Loan Agreement to read in its entirety as
follows:
"Bridge Financing Transaction" means a series of related
transactions (as more fully described in the Company's Consent
Solicitation Statement dated November 4, 1998 pursuant to which
consents were solicited from the Holders to amendments to the
Indenture to facilitate the Bridge Financing Transaction, which
description is incorporated herein by reference) pursuant to which,
among other things (i) the Company issues the Bridge Loan Notes,
(ii) the Company loans the proceeds of the issuance of the Bridge
Loan Notes to TARC, (iii) the liens on TEC's deposit accounts and
the TARC Intercompany Bridge Loan securing the Notes is released
and (iv) the liens on the remainder of the assets of the Lender
pledged to secure the Lender's 11 1/2% Senior Secured Notes due
2002 and its 13% Senior
<PAGE> 3
Secured Discount Notes due 2002 are subordinated to the liens
thereon securing the Bridge Loan Notes.
(b) A definition of "Bridge Loan Notes" is hereby added to the TARC
Intercompany Loan Agreement to read in its entirety as follows:
"Bridge Loan Notes" means promissory notes issued by the
Company pursuant to the Bridge Financing Transaction (which may be
issued with original issue discount) resulting in proceeds to the
Company not in excess of $25,000,000.
(c) The definition of "Permitted Liens" is hereby amended to delete the
word "and" immediately preceding the "(y)" and to add the following
clause at the end of the definition:
"Permitted Liens" shall mean . . . and (z) Liens securing the
TARC Intercompany Bridge Loan.
(d) A definition of "TARC Intercompany Bridge Loan" is hereby added to
the TARC Intercompany Loan Agreement to read in its entirety as
follows:
"TARC Intercompany Bridge Loan" means the promissory note from
TARC to TEC which is issued pursuant to the Bridge Financing
Transaction resulting in proceeds of up to $25,000,000 to TARC.
Section 1.02. Section 8.1 of the TARC Intercompany Loan Agreement.
Section 8.1(d) of the TARC Intercompany Loan Agreement is hereby amended to read
in its entirety as follows:
(d) a default which extends beyond any stated period of grace
applicable thereto, including any extension thereof, under (i)(x)
the Reimbursement and Credit Facility or (y) any mortgage,
indenture or instrument under which there is outstanding any Debt
of the Borrower or any of its Subsidiaries with an aggregate
principal amount in excess of $25 million or, in either case,
failure to pay such Debt at its stated maturity, provided that a
waiver of such default by the requisite parties to such
Reimbursement and Credit Agreement, mortgage, indenture or
instrument shall constitute a waiver hereunder for the same period
or (ii) the Bridge Loan Notes or failure to pay such Debt when due;
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ARTICLE II
MISCELLANEOUS
Section 2.01. Ratification and Confirmation. As amended and modified by
this Second Amendment, the terms and provisions of the TARC Intercompany Loan
Agreement are hereby ratified and confirmed and shall continue in full force and
effect.
Section 2.02. Reference to TARC Intercompany Loan Agreement. The TARC
Intercompany Loan Agreement, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms of the
TARC Intercompany Loan Agreement, are hereby amended so that any reference
therein to the TARC Intercompany Loan Agreement shall mean a reference to the
TARC Intercompany Loan Agreement as amended hereby.
Section 2.03. Counterparts. This Second Amendment may be executed in
one or more counterparts, each of which when executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.
Section 2.04. Headings. The headings, captions and arrangements used in
this Second Amendment are for convenience only and shall not affect the
interpretation of this Second Amendment.
Section 2.05. Governing Law. THIS SECOND AMENDMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the date of first written above.
TRANSAMERICAN REFINING CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
TRANSAMERICAN ENERGY CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
3
<PAGE> 1
EXHIBIT 4.35
- --------------------------------------------------------------------------------
TRANSAMERICAN ENERGY CORPORATION
AND
TRANSAMERICAN REFINING CORPORATION
------------------------
THIRD AMENDMENT TO LOAN AGREEMENT
Dated as of December 15, 1998
--------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THIRD AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Loan Agreement (this "Third Amendment") is made
as of December 15, 1998, by and between TransAmerican Energy Corporation, a
Delaware corporation ("TEC"), and TransAmerican Refining Corporation, a Texas
corporation ("TARC").
W I T N E S S E T H:
WHEREAS, TEC and Firstar Bank of Minnesota, N.A., as Trustee, have
entered into an Indenture dated as of June 13, 1997, as amended (the
"Indenture"), pursuant to which TEC issued $475,000,000 aggregate principal
amount of its 11 1/2% Senior Secured Notes due 2002 and $1,130,000,000 aggregate
principal amount of its 13% Senior Secured Discount Notes due 2002
(collectively, the "Notes"); and
WHEREAS, TEC and TARC have entered into a Loan Agreement dated as of
June 13, 1997, as amended by a First Amendment to Loan Agreement dated as of
December 30, 1997 and a Second Amendment to Loan Agreement dated as of November
13, 1998 (as so amended, the "TARC Intercompany Loan Agreement"), pursuant to
which TEC agreed to loan to TARC an aggregate of $675,648,920 out of the
proceeds of the issuance of the Notes; and
WHEREAS, TEC and TARC have agreed to certain amendments to the TARC
Intercompany Loan Agreement as hereinafter set forth (the "Proposed
Amendments"); and
WHEREAS, pursuant to Section 9.2 of the Indenture, the holders of not
less than 66-2/3% in aggregate Value (as defined in the Indenture) of the Notes
have consented to the Proposed Amendments to the TARC Intercompany Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Third
Amendment hereby agree as follows:
ARTICLE I
AMENDMENTS TO THE TARC INTERCOMPANY LOAN AGREEMENT
Section 1.01. Amendment to First Paragraph. The first paragraph of the
TARC Intercompany Loan Agreement is hereby amended to read in its entirety as
follows:
This Loan Agreement dated as of June 13, 1997 (this
"Agreement") is entered into by and between TransAmerican
Refining Corporation, a Texas corporation, and TransAmerican
Energy Corporation, a Delaware corporation (the "Lender").
Section 1.02. Amended Definitions. The following definitions in Section
1.1 of the TARC Intercompany Loan Agreement are hereby amended as follows:
(a) A definition of "Borrower" is hereby added to the TARC Intercompany
Loan Agreement to read in its entirety as follows:
"Borrower" shall mean TransAmerican Refining Corporation, a Texas
corporation.
<PAGE> 3
(b) The definition of "Construction Supervisor" is hereby amended to
read as follows:
"Construction Supervisor" means Baker & O'Brien,
Inc., as construction supervisor of the Capital Improvement
Program or any successor construction supervisor appointed by
TEC with the approval of TransContinental, which approval
shall not be unreasonably withheld.
(c) The definition of "Indenture" is hereby amended to read as follows:
"Indenture" shall mean that certain Indenture dated
as of the date hereof between the Lender and the Indenture
Trustee, as supplemented or amended through the Transaction
Closing Date.
(d) The definition of "Independent Director" is hereby deleted in its
entirety.
(e) The definition of "Intercreditor Agreement" is hereby deleted in
its entirety.
(f) The definition of "Permitted Hedging Transactions" is hereby
amended to read as follows:
"Permitted Hedging Transactions" shall mean
non-speculative transactions in futures, forwards, swaps or
option contracts (including both physical and financial
settlement transactions) engaged in by the TARC Entities or
TransContinental as part of their normal business operations
as a risk-management strategy or hedge against adverse changes
in market conditions in the natural gas industry as prices of
feedstock and 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.
(g) The definition of "Permitted Investment" is hereby amended to read
as follows:
"Permitted Investment" shall mean, when used with
reference to the Borrower or its Subsidiaries, (i) trade
credit extended to persons in the ordinary course of business;
(ii) purchases of Cash Equivalents; (iii) Investments by the
Borrower or its Subsidiaries in Subsidiaries of TARC or the
Borrower that are engaged, or are formed to engage, in Related
TARC Businesses or in TransContinental; (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 the Borrower of the assets
constituting the CATOFIN(R) Unit owned by the Borrower as of
the date hereof; (ix) a guaranty by any Subsidiary of the
Borrower permitted under the Indenture; (x) deposits permitted
by the definition of Permitted Liens or any extension, renewal
or replacement of
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<PAGE> 4
any of them; (xi) any acquisition by the Borrower of tank
storage facilities (or the company that owns such facilities)
in the vicinity of the Refinery; (xii) Investments in Accounts
Receivables Subsidiary Notes by the Borrower, or any of their
respective Subsidiaries in amounts not to exceed the greater
of $20 million or 20% of the TransContinental Borrowing Base
at any one time; (xiii) Investments by the Borrower in an
Accounts Receivable Subsidiary or in a reincorporation
subsidiary, in each case in connection with the initial
capitalization thereof, and not to exceed $1,000; (xiv)
Investments by the Borrower or a wholly owned Subsidiary
solely for the purpose of facilitating a repurchase of the
TARC Warrants; (xv) other Investments not in excess of $5
million at any time outstanding; (xvi) loans made (x) to
officers, directors and employees of the Borrower 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) the purchase or other acquisition by
the Borrower or its Subsidiaries of TEC Notes.
(h) The definition of "Permitted Liens" is hereby amended to read as
follows:
"Permitted Liens" shall mean 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 any of the TARC
Entities in accordance with GAAP; (b) statutory Liens of
landlords, carriers, warehousemen, mechanics, materialmen,
repairmen, mineral interest owners, or other like Liens
arising by operation of law in the ordinary course of
business; provided, that (i) the underlying obligations are
not overdue for a period of more than 60 days, or (ii) such
Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are
maintained on the books of any of the TARC Entities 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
$5,000,000 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 Port Commission Bond Financing; (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 $3,000,000; (g) pledges
or deposits made in the
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<PAGE> 5
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 TARC 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 TARC 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 TARC 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 (iii) any such Lien shall
not extend to or cover any property or assets other than such
item of New TARC Property and any improvements on such New
TARC Property and (iv) such Lien does not extend to assets or
property which are part of the fixed refinery assets which are
part of the Capital Improvement Program; (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 and Liens encumbering contract rights under
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 or 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 Unrestricted Non-Recourse Debt of the Borrower; (r)
Liens on the proceeds of any property subject to a Permitted
Lien or on deposit accounts containing any such proceeds; (s)
Liens on the proceeds of any property that is not Collateral
on the proceeds of any Debt Incurred in accordance with the
provisions hereof, or on deposit accounts containing any such
proceeds; (t) Liens imposed on the Port Facility Assets; (u)
any extension, renewal or replacement of the Liens created
pursuant to any of the clauses (a) through (g) or (i) through
(t) or (v); (v) Liens on any property owned by
TransContinental; (w) a Lien in favor of the Purchasers and
others securing Debt of TARC or TCR Holding in an aggregate
principal amount not in excess of $150,000,000; and (x) Liens
securing the TARC Intercompany Bridge Loan.
(i) The definition of "Phase I Completion Date" is hereby amended to
read as follows:
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<PAGE> 6
"Phase I Completion Date" shall mean the date on
which the Construction Supervisor issues a written notice (the
"Phase I Completion Notice") to the Borrower certifying that
the Phase I Performance Test has been completed.
(j) A definition of "Phase I Performance Test" is hereby added to the
TARC Intercompany Loan to read in its entirety as follows:
"Phase I Performance Test" means for a period of at
least 72 uninterrupted hours, TransContinental's refinery has
sustained (i) an average feedstock throughput level of at
least 150,000 barrels per day and (ii) 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.
(k) The definition of "Phase II Completion Date" is hereby amended to
read as follows:
"Phase II Completion Date" means the date on which
the Construction Supervisor issues a written notice (the
"Phase II Completion Notice") to the Borrower certifying that
for a period of at least 72 uninterrupted hours,
TransContinental's refinery has sustained (i) an average
feedstock throughput level of at least 180,000 barrels per day
and (ii) 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 60%, when
using a combined Crude Unit feedstock slate with an average
API Gravity of 22 degrees or less.
(l) The definition of "Plans" is hereby amended to read as follows:
"Plans" shall mean (a) the plans and specifications
prepared by or on behalf of the Borrower or TransContinental
which describe and show the proposed expansion and
modification of the Refinery, as amended from time to time
with the consent of the Construction Supervisor, and (b) a
budget prepared by or on behalf of the Borrower or
TransContinental, as amended from time to time with the
consent of the Construction Supervisor.
(m) The definition of "Port Commission Bond Financing" is hereby
amended to read as follows:
"Port Commission Bond Financing" shall mean a
financing transaction involving the transfer (including,
without limitation, transfer by sale, lease, lien or mortgage)
of TransContinental's interest in all or some of the following
assets (together with the granting, at TransContinental's
discretion, of any easements or servitudes reasonably
necessary to the ownership or operation of such assets by the
transferee) that are under construction in or near the
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: and (vi) tankage for liquefied
petroleum gas (the "Port Facility Assets").
(n) A definition of "Purchasers" is hereby added to the Intercompany
Loan Agreement to read as follows:
5
<PAGE> 7
"Purchasers" shall mean the initial purchasers from
TARC, pursuant to the Transaction, of the Capital Stock of TCR
Holding which has the right to vote in the election of
directors and their transferees and affiliates (in each case
other than TEC and its Subsidiaries).
(o) A definition of "Refinery Assets" is hereby added to the
Intercompany Loan Agreement to read as follows:
"Refinery Assets" shall mean substantially all of the
assets of TARC immediately prior to the Transaction Closing
Date.
(p) The definition of "Related Person" is hereby amended to read as
follows:
"Related Person" shall mean (i) any Person (other
than a Purchaser) directly or indirectly controlling or
controlled by or under direct or indirect common control with
the Borrower or any Subsidiary of the Borrower or any officer,
director, or employee of the Borrower or any Subsidiary of the
Borrower 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).
(q) The definition of "Restricted Payment" is hereby amended to read as
follows:
"Restricted Payment" shall mean, 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 Subordinated Debt, directly or indirectly,
or 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 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 Borrower from
any of its Subsidiaries, (iii) any defeasance, redemption,
repurchase, or other acquisition or retirement for value, in
whole or in part, of any Subordinated Debt of such Person
payable solely in shares of Qualified Capital Stock of such
Person, (iv) any payments or
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distributions made pursuant to and in accordance with the
Transfer Agreement, the Services Agreement, the Office Leases
or the Tax Allocation Agreement, or (v) any dividend,
distribution or other payment to TARC by the Borrower or to
the Borrower by any of its Subsidiaries, (vi) any Permitted
Prepayment, (vii) any redemption, repurchase or other
retirement for value of the TARC Warrants by the Lender or the
Borrower, including any premium paid thereon, (viii) any
redemption, defeasance, repurchase or other retirement for
value of the Senior TARC Mortgage Notes by the Borrower,
including any premium paid thereon, (ix) any redemption,
defeasance, repurchase or other retirement for value of the
Senior TARC Discount Notes by the Lender or the Borrower,
including any premium paid thereon, (x) 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 Section
4.11(2)(q), (2)(u), (2)(w) or Section 4.11(4)(j), (4)(w) or
(4)(z) of the Indenture, (xi) the purchasing by the Borrower
of shares of the Capital Stock of TransTexas or itself or
TransContinental in connection with its employee benefit plan,
including without limitation any employee stock ownership plan
or any employee stock option plan in an aggregate amount, with
respect to the issuer, not to exceed 7% of the aggregate
number of shares of the voting stock held by non-affiliates of
the issuer measured from the date of the first such
purchase,(xii) any repayment or retirement for value by the
Borrower of any loan from the Lender incurred pursuant to
Sections 4.11(2)(o), 4.11(2)(p), 4.11(4)(s) or 4.11(4)(t) of
the Indenture, (xiii) any purchase of Capital Stock of
TransContinental, (xiv) repayments by TCR Holding of its
promissory note in the principal amount of $200,000,000 to
TARC as part of a contemporaneous exchange of subordinated
notes of TCR Holding, and (xv) any distribution, dividend or
payment on shares of Capital Stock of TCR Holding (x) the
proceeds of which are used to purchase Notes or (y) that are
exchanged for Notes.
(r) The definition of "Subsidiary" is hereby amended to read as
follows:
"Subsidiary" with respect to any Person, shall mean
(i) a corporation with respect to which such Person or such
Person and its Subsidiaries own, directly or indirectly, at
least fifty percent of whose Capital Stock with voting power,
under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by such Person, by such
Person and one or more Subsidiaries of such Person or by one
or more Subsidiaries of such Person, 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 Person; provided, however, that
"Subsidiary" shall not include (i) any Unrestricted Subsidiary
of such Person, except for purposes of Section 4.10 of the
Indenture, (ii) an Accounts Receivable Subsidiary or (iii)
with respect to the Borrower, TransContinental.
(s) A definition of "TARC" is hereby added to the Intercompany Loan
Agreement to read in its entirety as follows:
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"TARC" shall mean TransAmerican Refining Corporation,
a Texas corporation.
(t) A definition of "TCR Holding Pledge Agreement" is hereby added to
the Intercompany Loan Agreement to read in its entirety as follows:
"TCR Holding Pledge Agreement" shall mean a pledge
agreement executed by TCR Holding in favor of TEC pledging all
of the common stock of TransContinental owned by TCR Holding
immediately following consummation of the Transaction as
security for the obligations of TCR Holding under the TARC
Working Capital Loan.
(u) A definition of "TransContinental" is hereby added to the
Intercompany Loan Agreement to read in its entirety as follows:
"TransContinental" shall mean TransContinental
Refining Corporation, a Delaware corporation, to which the
Refinery Assets will be transferred by TCR Holding pursuant to
the Transaction and, for purposes of Section 4.11 of the
Indenture, its Subsidiaries.
(v) A definition of "TCR Holding" is hereby added to the Intercompany
Loan Agreement to read in its entirety as follows:
"TCR Holding" shall mean TCR Holding Corporation, a
Delaware corporation, to which the Refinery Assets will be
transferred by TARC pursuant to the Transaction.
(w) The definition of "TARC Security Documents" is hereby amended to
read as follows:
"TARC Security Documents" shall mean this Loan
Agreement, the Disbursement Agreement, the TCR Holding Pledge
Agreement and each other agreement relating to the pledge of
assets to secure the Notes and any guarantee of the
obligations of the Borrower under the Note by any guarantor
that may be entered into after the date of the Note, pursuant
to the terms of the Note in each case, as amended from time to
time.
(x) A definition of "TARC Working Capital Loan" is hereby added to the
Intercompany Loan Agreement to read in its entirety as follows:
"TARC Working Capital Loan" shall mean any loan by
the Borrower to the Lender (other than the Loan).
(y) A definition of "TEC Discount Notes" is hereby added to the
Intercompany Loan Agreement to read in its entirety as follows:
"TEC Discount Notes" shall mean those certain 13%
Senior Secured Discount Notes due 2002 in the aggregate
principal amount of $1,130,000,000 issued by the Lender.
(z) The definition of "TEC Notes" is hereby amended to read as follows:
"TEC Notes" shall mean the TEC Senior Notes and the
TEC Discount Notes.
8
<PAGE> 10
(aa) A definition of "TEC Senior Notes" is hereby added to the
Intercompany Loan Agreement to read in its entirety as follows:
"TEC Senior Notes" shall mean those certain 11 1/2%
Senior Secured Notes due 2002 in the aggregate principal
amount of $475,000,000 issued by the Lender.
(bb) A definition of "Transaction" is hereby added to the Intercompany
Loan Agreement to read in its entirety as follows:
"Transaction" means a series of related transactions
(as more fully described in the Company's Consent Solicitation
Statement dated September 30, 1998, as amended, pursuant to
which consents were solicited from the Holders to amendments
to the Indenture to facilitate the Transaction, which
description is incorporated herein by reference) pursuant to
which, among other things, (i) the Lien on the TARC Collateral
is released, (ii) TARC transfers to TCR Holding the Refinery
Assets in exchange for (x) all of the capital stock of TCR
Holding and (y) the assumption by TCR Holding of certain debt
and other obligations of TARC, (iii) TCR Holding transfers to
TransContinental the Refinery Assets in exchange for all of
the common stock of TransContinental and TransContinental
assumes the debt and other obligations of TARC assumed by TCR
Holding other than the TARC Working Capital Loan and (iv)
certain Purchasers purchase (x) debt securities issued by
TARC, (y) equity securities issued by TransContinental and (z)
TCR Holding capital stock from TARC for aggregate gross
proceeds of approximately $151 million.
(cc) A definition of "Transaction Closing Date" is hereby added to the
Intercompany Loan Agreement to read in its entirety as follows:
"Transaction Closing Date" shall mean the date the
Refinery Assets are transferred by TARC to TCR Holding and by
TCR Holding to TransContinental pursuant to the Transaction.
(dd) A definition of "TransTexas Intercompany Loan" is hereby added to
the Intercompany Loan Agreement to read in its entirety as follows:
"TransTexas Intercompany Loan" means the senior
secured promissory note from TransTexas to the Company in the
principal amount of $450,000,000.
Section 1.03. Section 2.3 of the TARC Intercompany Loan Agreement.
Section 2.3(b) of the TARC Intercompany Loan Agreement is hereby amended as
follows:
(b) Borrower shall pay interest on the unpaid
principal amount of the Loan at a rate per anum equal to the
lesser of (i) sixteen percent (16%), and (ii) the Highest
Lawful Rate, until such principal amount shall be paid in
full, at the times and according to the terms and conditions
set forth in the Note, provided, however, that any amount of
principal which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest,
from the date on which such amount is due until such amount is
paid in full,
9
<PAGE> 11
payable on demand at a rate per annum equal at all times to
the lesser of (i) the Default Rate and (ii) the Highest Lawful
Rate.
Section 1.04. Section 2.4 of the TARC Intercompany Loan Agreement.
Section 2.4 of the TARC Intercompany Loan Agreement is hereby amended to add a
new sentence at the end thereof to read as follows:
Notwithstanding anything to the contrary herein, the
Borrower may repay the principal of the Loan by surrender to
the Lender of TEC Senior Notes or TEC Discount Notes. The
principal amount of the Loan shall be reduced upon such
surrender in an amount calculated pursuant to Section 3.1
hereof.
Section 1.05. Section 3.1 of the TARC Intercompany Loan Agreement.
Section 3.1 of the TARC Intercompany Loan Agreement is hereby deleted in its
entirety and replaced with a new Section 3.1 to read in its entirety as follows:
Section 3.1 Deemed Prepayments. Upon receipt by the
Lender of any Excess Cash (as defined in the indenture
governing the TEC Notes, as in effect on the Transaction
Closing Date), including upon any prepayment of the TransTexas
Intercompany Loan, the Lender shall be obligated to use
commercially reasonable efforts to apply, within 90 days after
such receipt, an amount equal to such prepayment to purchase
TEC Notes in whatever established market then exists therefor
or in privately negotiated transactions, at prices less than
100% of the principal amount of the TEC Senior Notes purchased
or 100% of the accreted value of the TEC Discount Notes
purchased, as the case may be, in each case before adding
accrued but unpaid interest. Upon any repurchase or retirement
of TEC Notes by the Lender, or purchase of TEC Notes by any
Subsidiary of the Lender other than the Borrower or
TransTexas, or surrender of TEC Notes by or on behalf of the
Borrower or by TransTexas in payment of their respective
obligations to the Lender, the principal amount of the Loan
shall automatically be reduced by an amount equal to the
quotient of (i) the difference between (x) the TARC
Contribution immediately prior to such adjustment and (y) the
Needed TARC Contribution on the date of such repurchase,
retirement or surrender divided by (ii) the product of (x) the
annual interest rate of the Loan multiplied by (y) the years
to maturity of the Loan from the later of such date and June
15, 1999.
"TARC Contribution" means as of any date the sum of
(i) the product of (x) the principal amount of each TARC
Working Capital Loan on such date multiplied by (y) the years
to maturity of such TARC Working Capital Loan from such date
multiplied by (z) the annual interest rate of such TARC
Working Capital Loan on such date plus (ii) the product of (x)
the principal amount of the Loan on such date multiplied by
(y) the years to maturity of the Loan from the later of such
date and June 15, 1999 multiplied by (z) the annual interest
rate of the Loan on such date.
"Needed TARC Contribution" means as of any date the
amount equal to the difference between (i) the TEC Interest
Obligation on such date minus (ii) the TransTexas Contribution
on such date and minus (iii) cash or Cash Equivalents of TEC
available to pay cash interest on the TEC Notes.
10
<PAGE> 12
"TEC Interest Obligation" means as of any date the
sum of (i) the product of (x) the principal amount of the TEC
Senior Notes on such date, after giving effect to each
repurchase or retirement of TEC Notes by the Lender, purchase
of TEC Notes by any Subsidiary of Lender other than Borrower
or TransTexas and surrender of TEC Notes to the Lender by or
on behalf of Borrower or TransTexas (assuming, in each case,
that such TEC Notes are no longer outstanding), multiplied by
(y) the years to maturity on such date of the TEC Senior Notes
multiplied by (z) the annual interest rate of the TEC Senior
Notes on such date or the Transaction Closing Date, whichever
is less, plus (ii) the product of (x) the principal amount of
the TEC Discount Notes on such date, after giving effect to
such repurchase, retirement, purchase or surrender (assuming,
in each case, that such TEC Notes are no longer outstanding),
multiplied by (y) the years to maturity of the TEC Discount
Notes from the later of such date and June 15, 1999 multiplied
by (z) the annual interest rate on such date or the
Transaction Closing Date, whichever is less.
"TransTexas Contribution" means as of any date the
sum of (i) the product of (x) the principal amount of each
TransTexas Working Capital Loan on the Transaction Closing
Date reduced by any prepayments of principal thereof in
accordance with its terms as in effect on the Transaction
Closing Date multiplied by (y) the years to maturity of such
TransTexas Working Capital Loan from such date multiplied by
(z) the annual interest rate of such TransTexas Working
Capital Loan on such date or the Transaction Closing Date,
whichever is greater, plus (ii) the product of (x) the
principal amount of the TransTexas Intercompany Loan on the
Transaction Closing Date reduced by any prepayments of
principal thereof in accordance with its terms as in effect on
the Transaction Closing Date multiplied by (y) the years to
maturity from such date of the TransTexas Intercompany Loan
multiplied by (z) the annual interest rate of the TransTexas
Intercompany Loan on such date or the Transaction Closing
Date, whichever is greater.
"TransTexas Working Capital Loan" means any
intercompany loan between TransTexas and the Company (other
than the TransTexas Intercompany Loan).
The Lender shall give Borrower notice of each
reduction in the principal amount due under the Loan pursuant
to this Section 3.1 and shall provide a calculation of such
reduction, in reasonable detail.
Section 1.06. Section 3.2 of the TARC Intercompany Loan Agreement.
Section 3.2 of the TARC Intercompany Loan Agreement is hereby amended to read as
follows:
Section 3.2 Permitted Prepayments. The Borrower may
at any time make a prepayment of all or a portion of the
principal amount of the Note then outstanding (a "Permitted
Prepayment") at a prepayment price equal to the Accreted Value
of the portion of the outstanding principal amount of the Note
to be prepaid together with accrued and unpaid interest, if
any, to and including the date of such Permitted Prepayment.
Section 1.07. Section 7.3 of the TARC Intercompany Loan Agreement.
Section 7.3 of the TARC Intercompany Loan Agreement is hereby amended to read as
follows:
11
<PAGE> 13
Section 7.3 Covenants Incorporated by Reference. The
Borrower shall, and shall cause each of its Subsidiaries to,
comply with each covenant applicable to the Borrower or its
Subsidiaries, as described in the Indenture (as the Indenture
exists on the Transaction Closing Date) as if made by the
Borrower as of the date hereof.
Section 1.08. Section 7.4 of the TARC Intercompany Loan Agreement. A
new Section 7.4 of the TARC Intercompany Loan Agreement is hereby added to read
as follows:
Section 7.4 Covenants of Lender. Until repayment in
full of the TEC Notes, the Lender shall comply with its
obligations under Section 4.21 of the Indenture and shall use
commercially reasonable efforts to apply all remaining Excess
Cash, except as provided in the following sentence, to effect
repurchases of TEC Notes at prices less than the face amounts
thereof. The Lender shall not be prohibited by this Section
7.4 from (i) retaining cash after making an Excess Cash Offer
pursuant to the terms of the Indenture in an amount sufficient
to pay interest on the TEC Notes which remain outstanding
after giving effect to purchases of Notes pursuant to such
Excess Cash Offer and (ii) retaining any amounts remaining
after compliance with Section 4.21 of the Indenture and making
the efforts required hereby with respect to remaining Excess
Cash, until such remaining amounts are loaned to TCR Holding
or TransContinental as an intercompany loan. The Lender shall
not, and shall not permit any of its Subsidiaries (other than
Borrower and any of its Subsidiaries) to, purchase any 16%
Senior Subordinated Notes due 2003 of TARC (or notes of TCR
Holding issued in exchange for such notes pursuant to the TCR
Holding exchange offer that is part of the Transaction).
Section 1.09. Section 8.1 of the TARC Intercompany Loan Agreement.
(a) Section 8.1(d) of the TARC Intercompany Loan Agreement is hereby
amended to read as follows:
(d) a default which extends beyond any stated period
of grace applicable thereto, including any extension thereof,
under (i)(x) the Reimbursement and Credit Facility or (y) any
mortgage, indenture or instrument under which there is
outstanding any Debt of the Borrower or any of its
Subsidiaries with an aggregate principal amount in excess of
$25 million if by reason of such default the principal of such
Debt and all accrued and unpaid interest thereon has been
declared due and payable, or, in either case, failure to pay
such Debt at its stated maturity, provided that a waiver of
such default by the requisite lenders under such mortgage,
indenture or instrument shall constitute a waiver hereunder
for the same period or (ii) the Bridge Loan Notes or failure
to pay such Debt when due;
(b) Section 8.1(h) of the TARC Intercompany Loan Agreement is hereby
amended to read as follows:
(h) except as caused by the consummation of the
Transaction (including, without limitation, the release of the
liens on the Refinery Assets granted pursuant to the TARC
Security Documents), any of the TARC Security Documents shall
for any reason cease to be in full force and effect (except
where no material adverse effect to the Lenders would
12
<PAGE> 14
result), or shall cease to give the Lenders the Liens, rights,
powers and privileges purported to be created thereby
including but not limited to, a perfected security interest
in, and Lien on, the Collateral in accordance with the terms
thereof, except where the failure to have such Lien, rights,
powers and privileges shall not have a material adverse effect
on the Lender;
Section 1.10. Section 8.2 of the TARC Intercompany Loan Agreement.
Section 8.2(a) of the TARC Intercompany Loan Agreement is hereby amended to read
as follows:
(a) If an Event of Default occurs and is continuing
(other than an Event of Default specified in Section 8.1(e) or
(f) above, relating to the Borrower or its Subsidiaries), then
in every such case, unless the principal of the Note shall
have already become due and payable, either the Indenture
Trustee or the Lender, by notice in writing to the Borrower
(and to the Indenture Trustee if given by the Lender) (an
"Acceleration Notice"), may declare the Accreted Value of the
outstanding principal amount of the Note and accrued and
unpaid interest thereon or, as appropriate, any prepayment
under 3.1(a) to be due and payable immediately. If an Event of
Default specified in Section 8.1(e) or (f) above occurs
relating to the Borrower or its Subsidiaries, all principal
and accrued and unpaid interest thereon will be immediately
due and payable on the Note without any declaration or other
act on the part of the Indenture Trustee or the Lender. The
Indenture Trustee generally is authorized to rescind such
acceleration if all existing Events of Default, other than the
non-payment of the principal and interest on the Note which
has become due solely by such acceleration, have been cured or
waived.
Section 1.11. Section 9.3 of the TARC Intercompany Loan Agreement.
Section 9.3 of the TARC Intercompany Loan Agreement is hereby amended to read as
follows:
Section 9.3 Notices. Any notices or other
communications to the Borrower, the Lender or the Indenture
Trustee required or permitted hereunder shall be in writing,
and shall be sufficiently given if made by hand delivery, by
telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company:
TransAmerican Refining Corporation
1300 North Sam Houston Parkway East
Suite 320
Houston, Texas 77032
Attention: Ed Donahue
Vice President
and to:
Trust Company of the West
11100 Santa Monica Blvd.
20th Floor
Los Angeles, California 90025
13
<PAGE> 15
Attention: Re: TransAmerican Refining
if to the Lender:
TransAmerican Energy Corporation
1300 North Sam Houston Parkway East
Suite 200
Houston, Texas 77032
Attention: Ed Donahue
Vice President
if to the Indenture Trustee:
Firstar Bank of Minnesota, N.A.
Corporate Trust Department
101 East Fifth Street, 12th Floor
St. Paul, Minnesota 55101-1860
Attention: Frank Leslie
The Borrower, the Lender or the Indenture Trustee by
notice to each other party may designate additional or
different addresses as shall be furnished in writing by such
party. Any notice or communication to the Borrower, the Lender
or the Indenture Trustee shall be deemed to have been given or
made as of the date so delivered, if personally delivered;
when answered back, if telexed; when receipt is acknowledged,
if telecopied; and five Business Days after mailing if sent by
registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been
given until actually received by the addressee).
Section 1.12. Section 9.11 of the TARC Intercompany Loan Agreement.
Section 9.11 of the TARC Intercompany Loan Agreement is hereby added to read as
follows:
Section 9.11 Release. The Collateral, in whole or in
part, may be released in accordance with the Indenture (as the
Indenture exists on the Transaction Closing Date). Each of the
Lender and the Borrower hereby acknowledges and consents to
the release of Collateral by the Indenture Trustee, as the
Lender's agent, pursuant to the terms of the Indenture.
Section 1.13. Section 9.12 of the TARC Intercompany Loan Agreement.
Section 9.12 of the TARC Intercompany Loan Agreement is hereby amended to read
as follows:
Section 9.12 Agreement. The term "Agreement," as used
in the Loan Agreement, and the terms "TARC Intercompany Loan
Agreement" and "Loan Agreement," as used in the other Loan
Documents, each shall mean and refer to the Loan Agreement, as
amended, modified, supplemented, restated, renewed, and/or
extended from time to time.
Section 1.14. Section 9.15 of the TARC Intercompany Loan Agreement. A
new Section 9.15 of the TARC Intercompany Loan Agreement is hereby added to read
as follows:
14
<PAGE> 16
Section 9.15 Amendments. This Agreement or any term
hereof may be amended or changed only by an instrument in
writing executed jointly by the Borrower and the Lender and in
accordance with Article IX of the Indenture.
Section 1.15. Amendment to First Paragraph of Section 1 of Back of
Note. The first paragraph of Section 1 of the back of the TARC Intercompany Note
shall be amended to read as follows:
1. Interest.
TransAmerican Refining Corporation, a Texas
corporation (the "Company"), promises to pay interest on the
principal amount of this Note at a rate of 16% per annum. To
the extent it is lawful, the Company promises to pay interest
on any interest payment due but unpaid on such principal
amount at the Default Rate.
ARTICLE II
MISCELLANEOUS
Section 2.01. Ratification and Confirmation. As amended and modified by
this Third Amendment, the terms and provisions of the TARC Intercompany Loan
Agreement are hereby ratified and confirmed and shall continue in full force and
effect.
Section 2.02. Reference to TARC Intercompany Loan Agreement. The TARC
Intercompany Loan Agreement, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms of the
TARC Intercompany Loan Agreement, are hereby amended so that any reference
therein to the TARC Intercompany Loan Agreement shall mean a reference to the
TARC Intercompany Loan Agreement as amended hereby.
Section 2.03. Counterparts. This Third Amendment may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.
Section 2.04. Headings. The headings, captions and arrangements used in
this Third Amendment are for convenience only and shall not affect the
interpretation of this Third Amendment.
Section 2.05. Governing Law. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 2.06. Effectiveness of Amendments. This Third Amendment is
effective as of the date first above written. However, the provisions of the
TARC Intercompany Loan Agreement amended or eliminated as provided in this Third
Amendment (the "Amended Provisions") shall remain operative in the form in which
they exist in the TARC Intercompany Loan Agreement until the Transaction Closing
Date, whereupon the Amended Provisions will be amended or eliminated as provided
herein, effective immediately prior to the Transaction Closing Date.
15
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed as of the date of first written above.
TRANSAMERICAN REFINING CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
TRANSAMERICAN ENERGY CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
16
<PAGE> 1
EXHIBIT 4.36
- -------------------------------------------------------------------------------
TRANSAMERICAN REFINING CORPORATION
AND
JEFFERIES & COMPANY, INC.
-------------------------
$200,000,000 Series A 16% Senior Subordinated Note due 2003
------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
Dated as of December 15, 1998
--------------------------
- ------------------------------------------------------------------------------
<PAGE> 2
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement (this "First
Amendment") is made as of December 15, 1998, by and among TransAmerican Refining
Corporation, a Texas corporation (the "Company"), and Jefferies & Company, Inc.
(the "Purchaser"). Capitalized terms used but not defined herein shall have the
meaning attributed to them in that certain Registration Rights Agreement, dated
as of December 30, 1997, among the Company and the Purchaser (the "Registration
Rights Agreement").
WHEREAS, the Company and First Union National Bank, as Trustee, have
entered into an Indenture dated as of December 30, 1997, as amended by a First
Supplemental Indenture thereto dated of even date herewith (the "Indenture"),
pursuant to which the Company issued $175,000,000 aggregate principal amount of
its 16% Senior Subordinated Notes due 2003, Series A; and
WHEREAS, as an inducement to the Purchaser to enter into the Purchase
Agreement (as defined in the Registration Rights Agreement), the Company entered
into the Registration Rights Agreement with the Purchaser for the benefit of the
Holders of the Securities; and
WHEREAS, the parties to the Registration Rights Agreement have agreed
to certain amendments to the Registration Rights Agreement as hereinafter set
forth (the "Proposed Amendments"); and
WHEREAS, in accordance with the provisions of Section 11(c) of the
Registration Rights Agreement, the written consent of the of Holders of at least
a majority of the then outstanding aggregate principal amount of Registrable
Securities to the adoption of the Proposed Amendments have been obtained;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this First
Amendment hereby agree as follows:
ARTICLE I
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
Section 1.01. Section 2 of the Registration Rights Agreement.
(a) Section 2(g) of the Registration Rights Agreement is
hereby amended to read in its entirety as follows:
(g) If, prior to consummation of the Exchange Offer,
the Purchaser holds any Securities acquired by it and having
the status as an unsold allotment in the initial distribution,
the Company shall, upon the request of the Purchaser,
simultaneously with the delivery of the Exchange Securities in
the Exchange Offer, issue (pursuant to the same indenture as
the Exchange Securities) and deliver to the Purchaser, in
exchange for the Securities held by the Purchaser (the
"Private Exchange"), a like principal amount of debt
securities of the Company that are identical to the Exchange
Securities (the "Private Exchange Securities"). The Private
Exchange Securities shall bear the same CUSIP number as the
Exchange Securities. Any Holder that is an affiliate of the
Company that has informed the Company in writing of its desire
to participate in a Private Exchange shall be permitted to
request and participate, on the same terms as if such Holder
were the Purchaser.
<PAGE> 3
(b) Section 2(i) of the Registration Rights Agreement is
hereby amended to read in its entirety as follows:
(i) If (i) prior to the consummation of the Exchange
Offer, either the Company or the Holders of a majority in
aggregate principal amount of Registrable Securities
determines in its or their reasonable judgment that (A) the
Exchange Securities 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 this Agreement, taken as a
whole, would be materially adversely affected by the
consummation of the Exchange Offer, (ii) applicable
interpretations of the staff of the SEC would not permit the
consummation of the Exchange Offer prior to 90 days after the
Effectiveness Date, (iii) subsequent to the consummation of
the Private Exchange but within one year of the Closing Date,
the Purchaser so requests, (iv) the Exchange Offer is not
consummated within 390 days of the Closing Date 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 Securities that may not
be sold without material restriction under state and federal
securities laws 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 shall
promptly deliver to the Holders (or in the case of any
occurrence of the event described in clause (v) of this
Section 2(i), to any such Holder) and the Trustee notice
thereof (the "Shelf Notice") and shall as promptly as possible
thereafter file an Initial Shelf Registration pursuant to
Section 3.
ARTICLE II
MISCELLANEOUS
Section 2.01. Ratification and Confirmation. As amended and modified by
this First Amendment, the terms and provisions of the Registration Rights
Agreement are hereby ratified and confirmed and shall continue in full force and
effect.
Section 2.02. Reference to Registration Rights Agreement. The
Registration Rights Agreement and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms of the
Registration Rights Agreement, are hereby amended so that any reference therein
to the Registration Rights Agreement shall mean a reference to the Registration
Rights Agreement as amended hereby.
Section 2.03. Counterparts. This First Amendment may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.
Section 2.04. Headings. The headings, captions and arrangements used in
this First Amendment are for convenience only and shall not affect the
interpretation of this First Amendment.
2
<PAGE> 4
Section 2.05. Governing Law. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING
WITHOUT LIMITATION, NEW YORK GENERAL OBLIGATIONS LAW SECTIONS 5-1401 AND 5-1402
AND NEW YORK CIVIL PRACTICE LAW AND RULE 327.
Section 2.06. Effectiveness of Amendments. This First Amendment is
effective as of the date first above written. However, the provisions of the
Registration Rights Agreement amended or eliminated as provided in this First
Amendment (the "Amended Provisions") shall remain operative in the form in which
they exist in the Registration Rights Agreement until the Transaction Closing
Date (as defined in the Indenture), whereupon the Amended Provisions will be
amended or eliminated as provided herein, effective immediately prior to the
Transaction Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed as of the date of first written above.
TRANSAMERICAN REFINING CORPORATION
By:
------------------------------------
Name: Ed Donahue
----------------------------------
Title: Vice President
----------------------------------
Accepted and Agreed to:
JEFFERIES & COMPANY, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
3
<PAGE> 1
EXHIBIT 4.37
- --------------------------------------------------------------------------------
TRANSAMERICAN REFINING CORPORATION
AND
JEFFERIES & COMPANY, INC.
-------------------------
$25,000,000 Series C 16% Senior Subordinated Note due 2003
------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
Dated as of December 15, 1998
--------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement (this "First
Amendment") is made as of December 15, 1998, by and among TransAmerican Refining
Corporation, a Texas corporation (the "Company"), and Jefferies & Company, Inc.
(the "Purchaser"). Capitalized terms used but not defined herein shall have the
meaning attributed to them in that certain Registration Rights Agreement, dated
as of March 16, 1998, among the Company and the Purchaser (the "Registration
Rights Agreement").
WHEREAS, the Company and First Union National Bank, as Trustee, have
entered into an Indenture dated as of March 16, 1998, as amended by a First
Supplemental Indenture thereto dated of even date herewith (the "Indenture"),
pursuant to which the Company issued $25,000,000 aggregate principal amount of
its 16% Senior Subordinated Notes due 2003, Series C; and
WHEREAS, as an inducement to the Purchaser to enter into the Purchase
Agreement (as defined in the Registration Rights Agreement), the Company entered
into the Registration Rights Agreement with the Purchaser for the benefit of the
Holders of the Securities; and
WHEREAS, the parties to the Registration Rights Agreement have agreed
to certain amendments to the Registration Rights Agreement as hereinafter set
forth (the "Proposed Amendments"); and
WHEREAS, in accordance with the provisions of Section 11(c) of the
Registration Rights Agreement, the written consent of the of Holders of at least
a majority of the then outstanding aggregate principal amount of Registrable
Securities to the adoption of the Proposed Amendments have been obtained;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this First
Amendment hereby agree as follows:
ARTICLE I
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
Section 1.01. Section 2 of the Registration Rights Agreement.
(a) Section 2(g) of the Registration Rights Agreement is
hereby amended to read in its entirety as follows:
(g) If, prior to consummation of the Exchange Offer, the
Purchaser holds any Securities acquired by it and having the
status as an unsold allotment in the initial distribution, the
Company shall, upon the request of the Purchaser,
simultaneously with the delivery of the Exchange Securities in
the Exchange Offer, issue (pursuant to the same indenture as
the Exchange Securities) and deliver to the Purchaser, in
exchange for the Securities held by the Purchaser (the "Private
Exchange"), a like principal amount of debt securities of the
Company that are identical to the Exchange Securities (the
"Private Exchange Securities"). The Private Exchange Securities
shall bear the same CUSIP number as the Exchange Securities.
Any Holder that is an affiliate of the Company that has
informed the Company in writing of its desire to participate in
a Private Exchange shall be permitted to request and
participate, on the same terms as if such Holder were the
Purchaser.
<PAGE> 3
(b) Section 2(i) of the Registration Rights Agreement is
hereby amended to read in its entirety as follows:
(i) If (i) prior to the consummation of the Exchange
Offer, either the Company or the Holders of a majority in
aggregate principal amount of Registrable Securities determines
in its or their reasonable judgment that (A) the Exchange
Securities 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 this Agreement, taken as a whole, would be
materially adversely affected by the consummation of the
Exchange Offer, (ii) applicable interpretations of the staff of
the SEC would not permit the consummation of the Exchange Offer
prior to 90 days after the Effectiveness Date, (iii) subsequent
to the consummation of the Private Exchange but within one year
of the Closing Date, the Purchaser so requests, (iv) the
Exchange Offer is not consummated within 255 days of the
Closing Date or such later date as is permitted under the
Series A Registration Rights Agreement to consummate the
Exchange Offer (as defined therein) 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 Securities that may not be sold
without material restriction under state and federal securities
laws 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 shall promptly deliver
to the Holders (or in the case of any occurrence of the event
described in clause (v) of this Section 2(i), to any such
Holder) and the Trustee notice thereof (the "Shelf Notice") and
shall as promptly as possible thereafter file an Initial Shelf
Registration pursuant to Section 3.
ARTICLE II
MISCELLANEOUS
Section 2.01. Ratification and Confirmation. As amended and modified by
this First Amendment, the terms and provisions of the Registration Rights
Agreement are hereby ratified and confirmed and shall continue in full force and
effect.
Section 2.02. Reference to Registration Rights Agreement. The
Registration Rights Agreement and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms of the
Registration Rights Agreement, are hereby amended so that any reference therein
to the Registration Rights Agreement shall mean a reference to the Registration
Rights Agreement as amended hereby.
Section 2.03. Counterparts. This First Amendment may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.
Section 2.04. Headings. The headings, captions and arrangements used in
this First Amendment are for convenience only and shall not affect the
interpretation of this First Amendment.
2
<PAGE> 4
Section 2.05. Governing Law. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING
WITHOUT LIMITATION, NEW YORK GENERAL OBLIGATIONS LAW SECTIONS 5-1401 AND 5-1402
AND NEW YORK CIVIL PRACTICE LAW AND RULE 327.
Section 2.06. Effectiveness of Amendments. This First Amendment is
effective as of the date first above written. However, the provisions of the
Registration Rights Agreement amended or eliminated as provided in this First
Amendment (the "Amended Provisions") shall remain operative in the form in which
they exist in the Registration Rights Agreement until the Transaction Closing
Date (as defined in the Indenture), whereupon the Amended Provisions will be
amended or eliminated as provided herein, effective immediately prior to the
Transaction Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed as of the date of first written above.
TRANSAMERICAN REFINING CORPORATION
By:
--------------------------------------
Name: Ed Donahue
------------------------------------
Title: Vice President
-----------------------------------
Accepted and Agreed to:
JEFFERIES & COMPANY, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
3
<PAGE> 1
EXHIBIT 4.38
________________________________________________________________________________
TCR HOLDING CORPORATION
and
TRANSCONTINENTAL REFINING CORPORATION
________________________
ASSUMPTION OF OBLIGATIONS UNDER 1995 WARRANT AGREEMENT
Dated as of December 15, 1998
__________________________
________________________________________________________________________________
<PAGE> 2
ASSUMPTION OF OBLIGATIONS UNDER 1995 WARRANT AGREEMENT
This Assumption of Obligations Under 1995 Warrant Agreement
("Assumption Agreement") is entered into as of this 15th day of December, 1998,
by TCR Holding Corporation, a Delaware corporation ("TCR") and TransContinental
Refining Corporation, a Delaware corporation ("TransContinental"), and in favor
of the holders of the Warrants (as defined below).
WHEREAS, TransAmerican Refining Corporation, a Texas corporation
("TARC"), TransAmerican Energy Corporation, a Delaware corporation ("TEC"), and
First Union National Bank, f/k/a First Fidelity Bank, N.A., as Warrant Agent
(the "Warrant Agent") entered into that certain Warrant Agreement dated as of
February 23, 1995, as amended by that certain First Amendment to Warrant
Agreement dated December 30, 1997 (the "Warrant Agreement"), pursuant to which
warrants ("Warrants") to purchase shares of Common Stock, par value $0.01 per
share, of TARC are issued and outstanding; and
WHEREAS, TARC proposes to consummate a reorganization pursuant to
which TARC will transfer substantially all of its assets (the "Refinery
Assets") to TCR Holding, which will in turn transfer the Refinery Assets to
TransContinental; and
WHEREAS, Section 12(n) of the Warrant Agreement provides that TARC may
not effect any Reorganization (as defined in the Warrant Agreement) unless
prior to or simultaneously with the consummation of the Reorganization, the
successor corporation or the corporation purchasing the assets of TARC
expressly assumes the obligations and liabilities of TARC under the Warrant
Agreement;
WHEREAS, TCR Holding desires to acquire the Refinery Assets and, in
connection therewith, to comply with the requirements of Section 12(n) of the
Warrant Agreement by assuming the obligations and liabilities of TARC
thereunder, and TransContinental desires to acquire the Refinery Assets and, in
connection therewith, to comply with Section 12(n) of the Warrant Agreement by
assuming the obligations and liabilities of TCR Holding thereunder (which
result from the assumption thereof by TCR Holding pursuant hereto);
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, TCR Holding and TransContinental
hereby agree as follows:
1. TCR Holding hereby assumes and agrees to perform, discharge,
and satisfy, on and after the date hereof, all of the liabilities and
obligations of TARC under the Warrant Agreement, including, but not limited to,
the obligation to deliver to the Holders (as defined in the Warrant Agreement)
such cash, such shares of stock, securities or assets as, in accordance with
the terms of the Warrant Agreement, the Holders may be entitled to purchase
upon exercise of the Warrants.
2. TransContinental hereby assumes and agrees to perform,
discharge, and satisfy, on and after the date hereof, all of the liabilities
and obligations of TCR Holding (which result from the assumption thereof by TCR
Holding pursuant hereto) under the Warrant Agreement, including, but not
limited to, the obligation to deliver to the Holders such cash, such shares of
stock, securities or assets as, in accordance with the terms of the Warrant
Agreement, the Holders may be entitled to purchase upon exercise of the
Warrants.
-2-
<PAGE> 3
3. Attached hereto as Exhibit A is a certificate of resolutions
adopted by the Board of Directors of TARC pursuant to the requirements of
Section 12(n) of the Warrant Agreement.
4. THIS ASSUMPTION AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, TCR Holding and TransContinental have caused this
Assumption Agreement to be duly executed on and effective as of day and year
first above written.
TCR HOLDING CORPORATION,
A Delaware corporation
By:_________________________________
Name: Ed Donahue
Title: Vice President
TRANSCONTINENTAL REFINING CORPORATION,
A Delaware corporation
By:_________________________________
Name: Ed Donahue
Title: Vice President
-3-
<PAGE> 1
EXHIBIT 4.39
________________________________________________________________________________
TCR HOLDING CORPORATION
and
TRANSCONTINENTAL REFINING CORPORATION
________________________
ASSUMPTION OF OBLIGATIONS UNDER 1997 WARRANT AGREEMENT
Dated as of December 15, 1998
__________________________
________________________________________________________________________________
<PAGE> 2
ASSUMPTION OF OBLIGATIONS UNDER 1997 WARRANT AGREEMENT
This Assumption of Obligations Under 1997 Warrant Agreement
("Assumption Agreement") is entered into as of this 15th day of December, 1998,
by TCR Holding Corporation, a Delaware corporation ("TCR") and TransContinental
Refining Corporation, a Delaware corporation ("TransContinental"), and in favor
of the holders of the Warrants (as defined below).
WHEREAS, TransAmerican Refining Corporation, a Texas corporation
("TARC") and First Union National Bank, as Warrant Agent (the "Warrant Agent")
entered into that certain Warrant Agreement dated as of December 30, 1997 (the
"Warrant Agreement"), pursuant to which warrants ("Warrants") to purchase
shares of Common Stock, par value $0.01 per share, of TARC are issued and
outstanding; and
WHEREAS, TARC proposes to consummate a reorganization pursuant to
which TARC will transfer substantially all of its assets (the "Refinery
Assets") to TCR Holding, which will in turn transfer the Refinery Assets to
TransContinental; and
WHEREAS, Section 4.14 of the Warrant Agreement provides that TARC may
not effect any Reorganization (as defined in the Warrant Agreement) unless
prior to or simultaneously with the consummation of the Reorganization, the
successor corporation or the corporation purchasing the assets of TARC
expressly assumes the obligations and liabilities of TARC under the Warrant
Agreement;
WHEREAS, TCR Holding desires to acquire the Refinery Assets and, in
connection therewith, to comply with the requirements of Section 4.14 of the
Warrant Agreement by assuming the obligations and liabilities of TARC
thereunder, and TransContinental desires to acquire the Refinery Assets and, in
connection therewith, to comply with Section 4.14 of the Warrant Agreement by
assuming the obligations and liabilities of TCR Holding thereunder (which
result from the assumption thereof by TCR Holding pursuant hereto);
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, TCR Holding and TransContinental
hereby agree as follows:
1. TCR Holding hereby assumes and agrees to perform, discharge,
and satisfy, on and after the date hereof, all of the liabilities and
obligations of TARC under the Warrant Agreement, including, but not limited to,
the obligation to deliver to the Holders (as defined in the Warrant Agreement)
such cash, such shares of stock, securities or assets as, in accordance with
the terms of the Warrant Agreement, the Holders may be entitled to purchase
upon exercise of the Warrants.
2. TransContinental hereby assumes and agrees to perform,
discharge, and satisfy, on and after the date hereof, all of the liabilities
and obligations of TCR Holding (which result from the assumption thereof by TCR
Holding pursuant hereto) under the Warrant Agreement, including, but not
limited to, the obligation to deliver to the Holders such cash, such shares of
stock, securities or assets as, in accordance with the terms of the Warrant
Agreement, the Holders may be entitled to purchase upon exercise of the
Warrants.
-2-
<PAGE> 3
3. Attached hereto as Exhibit A is a certificate of resolutions
adopted by the Board of Directors of TARC pursuant to the requirements of
Section 4.14 of the Warrant Agreement.
4. THIS ASSUMPTION AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, TCR Holding and TransContinental have caused this
Assumption Agreement to be duly executed on and effective as of day and year
first above written.
TCR HOLDING CORPORATION,
A Delaware corporation
By:_________________________________
Name: Ed Donahue
Title: Vice President
TRANSCONTINENTAL REFINING CORPORATION,
A Delaware corporation
By:_________________________________
Name: Ed Donahue
Title: Vice President
-3-
<PAGE> 1
EXHIBIT 4.40
- -------------------------------------------------------------------------------
TCR HOLDING CORPORATION
and
TRANSCONTINENTAL REFINING CORPORATION
------------------------
ASSUMPTION OF OBLIGATIONS UNDER 1998 WARRANT AGREEMENT
Dated as of December 15, 1998
--------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
ASSUMPTION OF OBLIGATIONS UNDER 1998 WARRANT AGREEMENT
This Assumption of Obligations Under 1998 Warrant Agreement
("Assumption Agreement") is entered into as of this 15th day of December, 1998,
by TCR Holding Corporation, a Delaware corporation ("TCR") and TransContinental
Refining Corporation, a Delaware corporation ("TransContinental"), and in favor
of the holders of the Warrants (as defined below).
WHEREAS, TransAmerican Refining Corporation, a Texas corporation
("TARC") and First Union National Bank, as Warrant Agent (the "Warrant Agent")
entered into that certain Warrant Agreement dated as of March 16, 1998 (the
"Warrant Agreement"), pursuant to which warrants ("Warrants") to purchase shares
of Common Stock, par value $0.01 per share, of TARC are issued and outstanding;
and
WHEREAS, TARC proposes to consummate a reorganization pursuant to which
TARC will transfer substantially all of its assets (the "Refinery Assets") to
TCR Holding, which will in turn transfer the Refinery Assets to
TransContinental; and
WHEREAS, Section 4.14 of the Warrant Agreement provides that TARC may
not effect any Reorganization (as defined in the Warrant Agreement) unless prior
to or simultaneously with the consummation of the Reorganization, the successor
corporation or the corporation purchasing the assets of TARC expressly assumes
the obligations and liabilities of TARC under the Warrant Agreement;
WHEREAS, TCR Holding desires to acquire the Refinery Assets and, in
connection therewith, to comply with the requirements of Section 4.14 of the
Warrant Agreement by assuming the obligations and liabilities of TARC
thereunder, and TransContinental desires to acquire the Refinery Assets and, in
connection therewith, to comply with Section 4.14 of the Warrant Agreement by
assuming the obligations and liabilities of TCR Holding thereunder (which result
from the assumption thereof by TCR Holding pursuant hereto);
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, TCR Holding and TransContinental
hereby agree as follows:
1. TCR Holding hereby assumes and agrees to perform, discharge, and
satisfy, on and after the date hereof, all of the liabilities and obligations of
TARC under the Warrant Agreement, including, but not limited to, the obligation
to deliver to the Holders (as defined in the Warrant Agreement) such cash, such
shares of stock, securities or assets as, in accordance with the terms of the
Warrant Agreement, the Holders may be entitled to purchase upon exercise of the
Warrants.
2. TransContinental hereby assumes and agrees to perform, discharge,
and satisfy, on and after the date hereof, all of the liabilities and
obligations of TCR Holding (which result from the assumption thereof by TCR
Holding pursuant hereto) under the Warrant Agreement, including, but not limited
to, the obligation to deliver to the Holders such cash, such shares of stock,
securities or assets as, in accordance with the terms of the Warrant Agreement,
the Holders may be entitled to purchase upon exercise of the Warrants.
-2-
<PAGE> 3
3. Attached hereto as Exhibit A is a certificate of resolutions adopted
by the Board of Directors of TARC pursuant to the requirements of Section 4.14
of the Warrant Agreement.
4. THIS ASSUMPTION AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
IN WITNESS WHEREOF, TCR Holding and TransContinental have caused this
Assumption Agreement to be duly executed on and effective as of day and year
first above written.
TCR HOLDING CORPORATION,
A Delaware corporation
By:
--------------------------------------------
Name: Ed Donahue
Title: Vice President
TRANSCONTINENTAL REFINING CORPORATION,
A Delaware corporation
By:
--------------------------------------------
Name: Ed Donahue
Title: Vice President
-3-
<PAGE> 1
EXHIBIT 5.1
January 18, 1999
TransAmerican Refining Corporation
1300 North Sam Houston Parkway East
Suite 320
Houston, Texas 77032-2949
Gentlemen:
We have served as counsel for TransAmerican Refining Corporation, a
Texas corporation (the "COMPANY"), in connection with the Registration
Statement on Form S-4 (the "REGISTRATION STATEMENT") filed with the
Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended (the "1933 ACT"), of
$200,000,000 principal amount of the Company's 16% Series B Senior
Subordinated Notes due 2003 (the "NOTES") to be offered in exchange for the
Company's outstanding $175,000,000 principal amount 16% Series A Senior
Subordinated Notes due 2003 and $25,000,000 principal amount 16% Series C
Senior Subordinated Notes due 2003.
We have examined the Registration Statement, the Indenture between
the Company and First Union National Bank, as Trustee, pursuant to which
the Notes are to be issued (the "INDENTURE"), the form of the Notes to be
issued and such other documents and such questions of law as we have deemed
necessary to render the opinion expressed below.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, and the authenticity
of the originals of such copied documents. We have also assumed, with
respect to all persons and entities other than the Company, the power
(corporate or otherwise) of such persons or entities to enter into and
perform all of their obligations under the Indenture, the due authorization
by all requisite action (corporate or otherwise) on the part of such
persons or entities, the due execution and delivery by such persons or
entities of such document, and the validity and binding effect thereof. As
to any facts material to the opinion expressed herein that we did not
independently establish or verify, we have relied upon oral or written
statements, certificates and representations of officers and other
representatives of the Company and others.
<PAGE> 2
January 18, 1999
Page 2
Based upon the foregoing, and subject to the qualifications set
forth below, we are of the opinion that when the Notes are executed and
authenticated in accordance with the terms of the Indenture and delivered
in the manner and for the consideration described in the Registration
Statement, the Notes will be binding and enforceable obligations of the
Company.
The opinion expressed above is subject to the following
qualifications:
A. The binding nature and enforceability of the Notes may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer, and other similar laws affecting the
enforcement of creditors' rights generally and (ii) equitable principles of
general application and judicial discretion that may limit or affect the
availability or grant of certain equitable remedies in certain instances.
In addition, the binding nature and enforceability of certain of the
remedial, waiver and other provisions of the Notes, or of the Indenture for
the Notes, may be restricted by applicable state law, but such restrictions
will not, in our opinion, render the Notes invalid as a whole or
substantially interfere with the realization of the principal legal
benefits purported to be provided by the Notes or by the Indenture for the
Notes (except to the extent of any procedural delay which may result
therefrom). Further, the binding nature and enforceability of the
indemnification provisions of the Indenture may be limited by public
policies embodied in or reflected by various state and federal securities
laws.
B. The opinion expressed herein is limited to the laws of the
United States of America and the laws of the State of Texas, and we assume
no responsibility as to the applicability or the effect of any other laws.
We have assumed that the laws of the State of New York, which purport to
govern the Notes and the Indenture, are the same as the laws of the State
of Texas with respect to the binding nature and enforceability of the
Notes.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement and to the use of our name in the Registration
Statement under the heading "Legal Matters." Our consent, however, is not
an admission that we come within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ C. ROBERT BUTTERFIELD
---------------------------------
C. Robert Butterfield, Partner
<PAGE> 1
EXHIBIT 12.1
TransAmerican Refining Corporation
Ratio of Earnings to Fixed Charges
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended
October 31, Year Ended January 31, January 31,
---------------------- ---------------------------------- ----------------------
1998 1997 1998 1997 1996 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes $ (41,181) $ (89,985) $(112,008) $ 9,406 $ (67,258) $ (26,071) $ (23,150)
Add:
Equity in (income) loss of
TransTexas 229 (35,027) (34,394) (12,325) 14,081 156 --
Interest expense, net of
amounts capitalized 10,785 13,870 20,446 4,663 18,451 5,978 31
Portion of rental expense
representative of an
interest factor 114 724 747 834 794 378 360
--------- --------- --------- --------- --------- --------- ---------
Earnings(A) $ (30,053) $(110,418) $(125,209) $ 2,578 $ (33,932) $ (19,559) $ (22,759)
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Total interest $ 129,519 $ 78,776 $ 113,400 $ 73,503 $ 59,994 $ 32,180 $ 3,540
Portion of rental expense
representative of an
interest factor 114 724 747 834 794 378 360
--------- --------- --------- --------- --------- --------- ---------
Fixed Charges(B) $ 129,633 $ 79,500 $ 114,147 $ 74,337 $ 60,788 $ 32,558 $ 3,900
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges(A/B) -- -- -- -- -- -- --
========= ========= ========= ========= ========= ========= =========
Earnings inadequate to cover
fixed charges $ 159,686 $ 189,918 $ 239,356 $ 71,759 $ 94,720 $ 52,117 $ 26,659
========= ========= ========= ========= ========= ========= =========
<CAPTION>
Year Ended July 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes $ (64,337) $ (17,353) $ (19,373)
Add:
Equity in (income) loss of
TransTexas 13,925 -- --
Interest expense, net of
amounts capitalized 12,504 14 17
Portion of rental expense
representative of an
interest factor 790 357 186
--------- --------- ---------
Earnings(A) $ (37,118) $ (16,982) $ (19,170)
========= ========= =========
Fixed charges:
Total interest $ 31,354 $ 14 $ 17
Portion of rental expense
representative of an
interest factor 790 357 186
--------- --------- ---------
Fixed Charges(B) $ 32,144 $ 371 $ 203
========= ========= =========
Ratio of earnings to fixed
charges(A/B) -- -- --
========= ========= =========
Earnings inadequate to cover
fixed charges $ 69,262 $ 17,353 $ 19,373
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in Amendment No. 1 to the Registration Statement
on Form S-4 of TransAmerican Refining Corporation (333-53821) of our report
dated April 30, 1998 relating to our audits 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."
PricewaterhouseCoopers LLP
Houston, Texas
January 22, 1999
<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 FEBRUARY 26, 1999, 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 January 26, 1999 (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:
- --------------------------------------------------------------------------------
,1999
(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:
- --------------------------------------------------------------------------------
,1999
<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
----------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
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 , 1999
- -------------------------------------------------------------------------------------------------------------------------
</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>
- ----------------------------------------------- , 1999
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).
- ---------------------------------------------------------
- ------------------------------------------------, 1999
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 JANUARY 26, 1999
- -----------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
26, 1999, 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 January 26, 1999 (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: --------------- , 1999
<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.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------------------------------------------
Name of Firm Title
- ------------------------------------------------------------ ------------------------------------------------------------
Authorized Signature Name (Please Type or Print)
- ------------------------------------------------------------
Address Dated: ------------------- , 1999
- ------------------------------------------------------------
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.
