-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MoH2T6JS3tCY59+cvTj7Bp7Rll8ESzEqRc4yib22h2/WgRkfJBm9KhcIvNf/2JaB XGtT6ylpgkS5/jzbSVgpUQ== 0000950129-98-001829.txt : 19980504 0000950129-98-001829.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950129-98-001829 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSAMERICAN REFINING CORP CENTRAL INDEX KEY: 0000927762 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 760229632 STATE OF INCORPORATION: TX FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-85930 FILM NUMBER: 98607454 BUSINESS ADDRESS: STREET 1: 1300 EAST NORTH BELT STREET 2: SUITE 320 CITY: HOUSTON STATE: TX ZIP: 77032-2949 BUSINESS PHONE: 2819868811 MAIL ADDRESS: STREET 1: 1300 EAST NORTH BELT STREET 2: SUITE 320 CITY: HOUSTON STATE: TX ZIP: 77032-2949 10-K405 1 TRANSAMERICAN REFINING CORPORATION - 01/31/98 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- REGISTRATION NUMBER 33-85930 TRANSAMERICAN REFINING CORPORATION (Exact name of registrant as specified in its charter) TEXAS 76-0229632 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1300 NORTH SAM HOUSTON PARKWAY EAST SUITE 320 HOUSTON, TEXAS 77032 (Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 986-8811 --------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The number of shares of common stock of the registrant outstanding on April 30, 1998, was 30,000,000. None of the registrant's common stock is owned by non-affiliates. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 9 PART II Item 5. Market for Registrant's Common Equity and Related 9 Stockholder Matters......................................... Item 6. Selected Financial Data..................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations.................................................. Item 7A. Quantitative and Qualitative Disclosures About Market 18 Risk........................................................ Item 8. Financial Statements and Supplementary Data................. 19 Item 9. Changes in and Disagreements With Accountants on Accounting 47 and Financial Disclosure.................................... PART III Item 10. Directors and Executive Officers of the Registrant.......... 47 Item 11. Executive Compensation...................................... 48 Item 12. Security Ownership of Certain Beneficial Owners and 50 Management.................................................. Item 13. Certain Relationships and Related Transactions.............. 50 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 52 8-K......................................................... Signatures............................................................ 57
3 PART I ITEM 1. BUSINESS GENERAL TransAmerican Refining Corporation (the "Company" or "TARC") was formed in 1987 to hold and operate the refinery assets of TransAmerican Natural Gas Corporation (together with its predecessors, "TransAmerican") and 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's business strategy is to modify, expand and reactivate its refinery and to maximize its gross refining margins by converting low-cost, heavy, sour crude oils into high-value, light petroleum products, including primarily gasoline and heating oil. TARC is a wholly-owned subsidiary of TransAmerican Energy Corporation ("TEC"). TEC was formed in 1994 to hold certain shares of common stock of TransTexas Gas Corporation ("TransTexas") and all of the outstanding capital stock of TARC. TARC, TransTexas and TEC are all direct or indirect subsidiaries of TransAmerican. The address of TARC's principal executive offices is 1300 North Sam Houston Parkway East, Suite 320, Houston, Texas 77032, and its telephone number at that address is (281) 986-8811. In February 1995, TARC began a construction and expansion program (the "1995 Program") designed to reactivate the refinery and increase its complexity. From February 1, 1995 through May 1997, TARC spent approximately $251 million on the 1995 Program, procured a majority of the essential equipment required and completed substantially all of the process design engineering and a substantial portion of the remaining engineering necessary for its completion. In order to capitalize on the progress on the refinery made through its expenditures on the 1995 Program, in June 1997 TARC commenced a modified two-phase construction and expansion program (the "Capital Improvement Program"). TARC spent approximately $215 million on the Capital Improvement Program during the period between June 1997 and January 31, 1998. The design and estimated timing and cost of the Capital Improvement Program are based on substantial input from several engineering and construction firms which have been engaged to perform design engineering and construction management services. Phase I of the Capital Improvement Program includes the completion and start-up of several units, including the Delayed Coking Unit, one of the refinery's major conversion units. Phase II of the Capital Improvement Program includes the completion and start-up of the Fluid Catalytic Cracking Unit utilizing state-of-the-art MSCC(SM) technology and the installation of additional equipment expected to further improve operating margins by allowing for a significant increase in the refinery's capacity to produce gasoline. After completion of the Capital Improvement Program, TARC will own and operate one of the largest independent refineries in the Gulf Coast region, with a replacement cost estimated by management to be approximately $1.4 billion. TARC currently believes that the costs of construction of the refinery will exceed the budget established in June 1997, but that sufficient cash will be available to fund such costs. See "-- Capital Improvement Program -- Capital Budget Status" and "-- Completion Status." The foregoing estimates, as well as other estimates and projections herein, are subject to substantial revision upon the occurrence of future events, such as unavailability of financing, engineering problems, work stoppages and cost overruns, over which TARC may not have any control, and there can be no assurance that any such projections or estimates will prove accurate. INDUSTRY OVERVIEW Total growth in United States refining capacity has remained very low over the past several years. Over the same period, however, demand for refined products has increased. As a result, capacity utilization has increased to approximately 95.0% in 1997 from approximately 83.1% in 1987. The refinery utilization rate is an important factor in achieving and maintaining refining profitability. Management of TARC believes that over the next several years domestic demand for refined products will continue to increase while refining capacity growth will remain slow, causing United States refining utilization rates to remain high. These factors, if sustained, would likely result in an increased demand for product imports into the United States. Management 1 4 believes that these factors, together with relatively low prices expected by it for heavy, sour crude oil, should have a positive effect on TARC's refining margins. DOMESTIC REFINING CAPACITY UTILIZATION RATES, AND DEMAND FOR REFINED PRODUCTS
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Capacity MMBpd).............................. 15.6 15.9 15.6 15.6 15.7 15.7 15.1 15.0 15.4 15.3 15.5 Utilization.................................. 83.1% 84.7% 86.6% 87.1% 86.0% 87.9% 91.5% 92.6% 91.9% 93.5% 95.0% Demand for refined products (MMBpd).......... 16.7 17.3 17.3 17.0 16.7 17.0 17.2 17.7 17.7 18.2 18.6
- --------------- Source: Energy Information Administration. CURRENT OPERATIONS The No. 2 Vacuum Unit was operated intermittently between March 1994 and January 1997. Modifications and tie-ins to the No. 2 Crude Unit have been completed. Although both units are operational, TARC is not currently operating these units due to low operating margins obtainable for these units on a stand-alone basis. The following is a brief description of TARC's No. 2 Vacuum Unit and No. 2 Crude Unit: No. 2 Vacuum Unit. TARC believes that the No. 2 Vacuum Unit has a capacity in excess of 200,000 Bpd. TARC reactivated the No. 2 Vacuum Unit in March 1994. The No. 2 Vacuum Unit is designed to process atmospheric tower bottoms into VGO and, with the addition of cutterstocks, into No. 6 residual fuel oil. When the No. 2 Crude Unit is placed into operation, the No. 2 Vacuum Unit will process bottoms from the No. 2 Crude Unit. When the Delayed Coking Unit is complete, the No. 2 Vacuum Unit tower bottoms are expected to be processed through the Delayed Coking Unit into lighter, more valuable products. Upon completion of Phase II, VGO is expected to be upgraded in the Fluid Catalytic Cracking Unit to gasoline and No. 2 fuel oil. No. 2 Crude Unit. The No. 2 Crude Unit was designed to process heavy, sour crude oil and previously has demonstrated a capacity of 175,000 Bpd. Upon completion of the Capital Improvement Program, the No. 2 Crude Unit is expected to process up to 200,000 Bpd of a mix of crude oils into naphtha, kerosene, No. 2 fuel oil, atmospheric gas oil and atmospheric residual oil. CAPITAL IMPROVEMENT PROGRAM The Capital Improvement Program is designed to increase the capacity and complexity of the refinery. The most significant projects include: (i) converting the visbreaker unit into a delayed coking unit to process vacuum tower bottoms into lighter petroleum products, (ii) modernizing and upgrading a fluid catalytic cracking unit to increase gasoline production capacity and allow the direct processing of low cost atmospheric residual feedstocks and (iii) upgrading and expanding hydrotreating, alkylation and sulfur recovery units to increase sour crude processing capacity. In addition, TARC 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 is acting and will act as general contractor, but has engaged a number of specialty consultants and engineering and construction firms to assist TARC in completing the individual projects that comprise the Capital Improvement Program. Each of these firms was selected because of its specialized expertise in a particular process or unit integral to the Capital Improvement Program. 2 5 The Capital Improvement Program will be executed in two phases, described as follows: Phase I Phase I includes the Delayed Coking Unit, the HDS Unit, the Naphtha Pretreater, the No. 2 Reformer, the Sulfur Recovery System and the supporting Offsite Facilities. Completion of Phase I, along with the Crude and Vacuum Units, will enable the refinery to process heavy crude and other purchased feedstocks into finished and intermediate products. Products from this phase are expected to include NGLs, naphtha, conventional gasoline, No. 2 fuel oil, VGO, sulfur and petroleum coke. The following is a brief description of the units and offsite facilities that are scheduled to be added or improved during Phase I and TARC's plans and expectations therefor: Delayed Coking Unit. TARC's Visbreaking Unit is being converted to a Delayed Coking Unit. The process engineering for this conversion has been completed by ABB Lummus Crest Inc. Detailed design engineering has been completed and all major equipment has been purchased and installed. Fluor Daniel, Inc. is managing the construction, which consists primarily of the installation of piping and instrumentation systems. The Delayed Coking Unit is expected to be able to process approximately 75,000 Bpd of vacuum tower bottoms produced from the No. 2 Vacuum Unit. Products from this unit will include light gas, naphtha, coker distillate, and coker gas oil, which can all be further upgraded by TARC's refinery or sold to other refiners for upgrading. Petroleum coke will be produced as a by-product of the coking process. Naphtha Pretreater. TARC has purchased a used naphtha pretreater, which it has disassembled and moved to the refinery site. Recent inspection of the used piping in the naphtha pretreater indicates that a majority of it will need to be replaced. Upon re-assembly, this unit will produce desulfurized heavy naphtha, to be processed by the No. 2 Reformer into reformate for blending into gasoline, and light naphtha for gasoline blending or sales. The Naphtha Pretreater is designed to process up to 30,000 Bpd of naphtha feedstock produced by the No. 2 Crude Unit and the Delayed Coking Unit. No. 2 Reformer. The No. 2 Reformer was purchased by TARC's predecessor and relocated to the refinery during the 1980s expansion. Although re-assembly is not complete, all major equipment is installed. Field construction will include reconditioning of equipment plus installation of piping and instrumentation systems. The No. 2 Reformer will process desulfurized heavy naphtha to raise its octane level to that suitable for gasoline blending. The unit is designed to process up to 12,000 Bpd of feedstock to produce high octane reformate for gasoline blending. This unit will also provide a portion of the hydrogen required for operation of the Naphtha Pretreater and the HDS Unit. Hydrodesulfurization (HDS) Unit. In the early 1980s, TARC's predecessor designed and commenced construction of a two-train distillate HDS Unit with a common fractionation section. During Phase I, TARC will install two new reactors, both of which have been purchased and delivered, and add another fractionation section to permit independent operation of both trains. Other major equipment required is in place. When completed, each train will be capable of treating either distillate or VGO depending on unit or product requirements. Sulfur Recovery System. Sulfur is captured in various refining processes, primarily cracking and hydrodesulfurization, in the form of hydrogen sulfide which is absorbed into an amine solution or into sour water streams. The hydrogen sulfide is stripped from these streams and processed in a series of reactors into elemental sulfur. TARC will reactivate and expand an existing sulfur unit to a capacity of 150 LT/D and construct a 220 LT/D unit, and construct ancillary facilities to support these units. These plants will have a combined base capacity of 370 LT/D of sulfur, which can be increased to 510 LT/D of sulfur with standard oxygen enrichment. Offsite Facilities/Tankage. TARC will add steam-generating capacity, air compression equipment and new electrical equipment during Phase I. A marine vapor recovery system will also be installed at the terminal docks. TARC is adding equipment necessary to load petroleum coke at one of its docks. TARC is performing the engineering on these facilities with support from specialty engineering firms such as River Consulting Inc., Lanier and Associates, ABB Combustion Engineering Systems and RPM Engineering Inc. TARC has 3 6 purchased an adjacent storage terminal to provide additional storage. 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 commenced Hazardous Operation ("HAZOP") analyses of the refinery process units as required by Occupational Safety and Health Administration ("OSHA") regulations. Phase II Phase II includes the FCC Unit, FCC Upgrades, Alkylation Unit and some additional Offsite Facilities. Startup of these facilities will increase the refinery's output of higher margin finished products, primarily gasoline and No. 2 fuel oil. TARC anticipates that, following completion of Phase II, it will have the capacity to process in excess of 200,000 Bpd of combined heavy, sour crude oil and atmospheric residual oil. The following is a brief description of the units and offsite facilities that are scheduled to be added or improved during Phase II and TARC's plans and expectations therefor: Fluid Catalytic Cracking (FCC) Unit. TARC's FCC Unit will process gas oil feedstocks directly from the No. 2 Crude Unit, the No. 2 Vacuum Unit, the Delayed Coking Unit, or from outside purchases of VGO or atmospheric residual oil. Before being fed to the FCC Unit, some of the VGO will be desulfurized in the HDS Unit in order to meet environmental guidelines and improve product quality from the FCC Unit. Modernization of the FCC Unit includes reconfiguration of the fractionation plant. The FCC Unit will have an initial capacity of 100,000 Bpd and will incorporate the state-of-the-art MSCC(SM) technology licensed by UOP, formerly Universal Oil Products ("UOP"). The MSCC(SM) technology is currently being used at a major U.S. refinery. TARC believes that this technology will improve product yields and quality in comparison to conventional catalytic cracking processes. TARC also plans to add a catalyst cooler, which will make the unit capable of processing significant quantities of atmospheric residual feedstocks. The FCC Unit will produce refinery fuel, propane, butane, light olefins, gasoline blendstock, No. 2 fuel oil, and a residual product (decant/slurry oil). Light olefins will be processed in the Alkylation Unit for further upgrade. Other materials will be blended to finished products or consumed in the refinery. Process engineering for the MSCC(SM) technology has been completed by UOP. Raytheon Engineers and Constructors Inc. ("Raytheon") is providing detailed design engineering and is managing construction of the FCC Unit. All major equipment has been procured, delivered and erected. FCC Flue Gas Scrubber. TARC plans to install a scrubber for the FCC flue gases to reduce particulate and sulfur dioxide emissions. The flue gas scrubber has been designed and fabricated by Belco Technologies Inc., and is being erected under a fixed price contract. Alkylation Unit. Light olefins from the FCC Unit are converted to high octane gasoline blendstock (alkylate) in the Alkylation Unit. Alkylate is a relatively clean burning fuel component important in the production of environmentally sensitive gasolines. The Alkylation Unit will be reactivated and expanded to an ultimate capacity of approximately 26,000 Bpd of alkylate product by installing four new contactors and two new settlers designed by Stratco Inc. and a new refrigeration system. Remaining work includes inspection and testing of the equipment in the existing unit and installation of a new electronic instrumentation system. Fluor Daniel is providing engineering and construction management services for this work. Offsite Facilities/Tankage. Additional capacity will be installed for cooling water, steam, plant air, instrument air and electrical distribution. Construction of nine tanks, with aggregate capacity of one million barrels, will be completed. Other piping, electrical and instrumentation equipment will be installed to connect the Phase II process units with the refinery and new storage tanks. Other. TARC is required to perform HAZOP analysis of the refinery process units added during Phase II as required by OSHA regulations. 4 7 CAPITAL BUDGET AND EXPENDITURES The following table sets forth certain information with respect to the Capital Improvement Program, including the budget as of June 13, 1997 and expenditures as of January 31, 1998.
BUDGET EXPENDITURES TO DAILY TO COMPLETE(1) JANUARY 31, 1998(2) CAPACITY -------------- ------------------- -------- (DOLLARS IN (DOLLARS IN MILLIONS) MILLIONS) (BPD) PHASE I: Crude Unit................................ $ 3 $ 3.7 200,000 Delayed Coking Unit....................... 27 45.2 75,000 Naphtha Pretreater........................ 12 7.1 30,000 No. 2 Reformer............................ 9 0.7 12,000 HDS Unit.................................. 24 11.8 60,000 Sulfur Recovery System.................... 53 23.8 370(4) Offsite Facilities/Tankage................ 46 33.3 N/A Other..................................... 3 0.4 N/A Engineering and Administrative............ 7 8.0 N/A Contingencies(3).......................... 39 -- N/A ---- ------ Total Phase I..................... 223 134.0 ---- ------ PHASE II: FCC Unit.................................. 115 67.9 100,000 FCC Flue Gas Scrubber..................... 14 5.5 N/A Alkylation Unit........................... 24 6.6 26,000 Offsite Facilities/Tankage................ 26 1.0 N/A Other..................................... 2 -- N/A Engineering and Administrative............ 3 -- N/A Contingencies(3).......................... 20 -- N/A ---- ------ Total Phase II.................... 204 81.0 ---- ------ Total Phase I and Phase II........ $427 $215.0 ==== ======
- --------------- (1) Budget as of June 13, 1997 for estimated expenditures from June 13, 1997 to completion. See "-- Capital Budget Status" (2) From June 13, 1997 through January 31, 1998. (3) To the extent expenditures have exceeded or are expected to exceed the approved capital budget for a unit or units, the contingencies portion of the budget is allocated to specific units. As of January 31, 1998, the entire contingencies portion of the budget has been allocated to specific units. (4) Units are LT/D. Capacity can be increased to 510 LT/D with oxygen enrichment. CAPITAL BUDGET STATUS As of April 30, 1998, TARC was in the process of preparing information for the Construction Supervisor in connection with the Construction Supervisor's bimonthly report, to be finalized by the Construction Supervisor in May. TARC believes that the report will indicate the necessity for expenditures in excess of the budget of up to approximately $45 million, of which approximately $30 million will be allocated to Phase I. These estimates are preliminary, and may change in the May report. Cash available in the TARC Disbursement Account is sufficient to fund the projected remaining costs of Phase I. Although there can be no assurance, TARC believes that cash available in the TARC Disbursement Account, other cash on hand (exclusive of any proceeds of the issuance of Port Commission Bonds, discussed below), and anticipated cash flow from operation of certain Phase I units will be sufficient to fund the projected remaining costs of Phase II. 5 8 COMPLETION STATUS 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. PORT COMMISSION BONDS TARC and the South Louisiana Port Commission ("Port Commission") have entered into a preliminary agreement for the issuance of revenue bonds which, if issued, are expected to provide net proceeds to TARC of approximately $50 million. Of such proceeds, TARC anticipates that approximately $35 million would be available to fund construction of facilities included in the Capital Improvement Program budget. The Port Commission would own a coke handling system and certain tank storage and dock facilities. TARC would operate such facilities pursuant to a long-term (25-year) lease. TARC is currently working with an underwriter to structure an offering of revenue bonds pursuant to this preliminary agreement. There can be no assurance, however, that the issuance of an such tax-exempt bonds will occur. FEEDSTOCK FINANCING ARRANGEMENTS AND PROCESSING AGREEMENTS During periods of limited operations, TARC has entered into financing arrangements in order to maintain an available supply of feedstocks. Typically, TARC entered into an agreement with a third party to acquire a cargo of feedstock scheduled for delivery to TARC's refinery. TARC paid through the third party all transportation costs, related taxes and duties and letter of credit fees for the cargo, plus a negotiated commission. Prior to arrival at the refinery, another third party purchased the cargo, and TARC committed to purchase, at a later date, the cargo at an agreed priced plus commission and costs. TARC also placed margin deposits with the third party to permit the third party to hedge its price risk. TARC purchased these cargos in quantities sufficient to maintain expected operations and was obligated to purchase all of the cargos delivered pursuant to these arrangements. In the event the refinery was not operating, these cargos could be sold on the spot market. In April 1996, TARC entered into a processing agreement with a third party to process feedstocks. Under the terms of the agreement, the processing fee earned by TARC is based on the margin, if any, earned by the third party from product sales, after deducting all of its related costs such as feedstock acquisition, hedging, transportation, processing and inspections plus a commission for each barrel processed. As of January 31, 1998, TARC has processed 6.4 million barrels of feedstocks under this agreement. TARC also entered into processing agreements with this third party to process approximately 1.1 million barrels of the third party's feedstocks for a fixed price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded income (loss) from processing agreements of $1.4 million and $(7.1) million, respectively. As of January 31, 1998 and 1997, TARC was storing approximately 0.7 million and 1.0 million barrels, respectively, of feedstock and intermediate or refined products pursuant to these processing agreements. Included in the 0.7 million barrels of product stored at the refinery as of January 31, 1998, is approximately 0.6 million barrels of feedstock owned by a third party related to a purchase commitment entered into in April 1997. For the year ended January 31, 1998, TARC incurred a loss of approximately $7.8 million related to this purchase commitment. PRICE MANAGEMENT ACTIVITIES In order to mitigate the commodity price risks associated with the refining business, TARC has previously entered, and may in the future enter, into futures contracts, options on futures, swap agreements and forward sale agreements commensurate with its inventory levels and feedstock requirements and as permitted under TARC's debt instruments. If TARC believes it can capitalize on favorable market conditions, 6 9 it will attempt to utilize the futures market to fix a portion of its crude oil costs and refined products values. This hedging strategy is designed to retain the value of a portion of its work-in-process inventory. CRUDE OIL AND FEEDSTOCK SUPPLY TARC has no crude oil reserves and is not engaged in the exploration for crude oil. TARC plans to obtain all its crude oil requirements from unaffiliated sources. Although TARC currently has no long-term supply contracts, it has entered into negotiations with a major supplier of heavy, sour crude oil and is in discussions with two other suppliers. TARC expects to be able to purchase feedstocks on the spot market as needed and believes that it will have access to adequate supplies of crude oil it intends to process; however, there can be no assurance that such supplies will be available on favorable terms. Crude oil prices are affected by a variety of factors that are beyond the control of TARC. The principal factors currently influencing prices include the pricing and production policies of members of the Organization of Petroleum Exporting Countries, the availability to world markets of production from Kuwait, Iraq and Russia and the worldwide and domestic demand for oil and refined products. Oil pricing will continue to be unpredictable and greatly influenced by governmental and political forces. The refinery has a variety of available options for the receipt of feedstocks. The Mississippi River permits delivery of feedstocks from both barge and ocean-going vessels. TARC has four ship docks and a barge dock on the Mississippi River. TARC's title to and continued use of these facilities is subject to the rights of the government and public use. TARC's ship dock can accommodate 100,000 deadweight ton ("dwt") tankers that draw less than 45 feet of water, or up to 200,000 dwt tankers that have been partially offloaded and draw less than 45 feet of water. The barge dock provides access to smaller cargos of intermediate feedstocks such as VGOs or atmospheric residuals. Additionally, TARC is connected to a Shell Oil Company ("Shell") crude pipeline that provides access to Louisiana Offshore Oil Port's 24-inch pipeline network, thereby permitting TARC to receive large quantities of foreign crude oil. This pipeline also provides access to Louisiana and other domestic crudes. PRODUCT DISTRIBUTION TARC currently has no long-term sales contracts. Major market areas for TARC's refined products will include the Gulf Coast region, the Mississippi River Valley and the East Coast of the United States, as well as foreign markets. TARC's refined products will be transported by pipeline, rail tanker, ocean-going vessel and tank truck. TARC's refinery is connected, through third-party pipelines, to two major Gulf Coast common carrier pipelines, the Colonial and the Plantation, which will permit transportation of the refinery's products to East Coast markets. Products can be discharged into these pipelines at rates of up to 15,000 Bbls per hour. TARC is also connected to several pipelines designed to transfer refined products to a nearby refinery operated by Shell. Railroad lines serve the refinery and adjacent industries. TARC's barge and ship docks provide access to the Mississippi River and the intracoastal waterway. TANK STORAGE ACQUISITION On September 9, 1997, TARC acquired tank storage facilities and property located adjacent to TARC's refinery for $40 million. The acquired assets included approximately 5.5 million barrels of tank storage capacity for crude oil, feedstocks and finished products, and three docks on the Mississippi River, as well as almost 500 acres of undeveloped wetlands. TARC is integrating the tank storage and terminal facilities with its refinery offsites systems and is leasing to other persons storage that is not needed for its own operations. 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. 7 10 INSURANCE TARC maintains insurance in accordance with customary industry practices to cover some, but not all, risks. TARC currently maintains property insurance for the refinery in an amount and with deductibles that management believes will allow TARC to survive damage to the refinery. TARC plans to increase insurance coverage amounts from time to time as it completes certain portions of the Capital Improvement Program. SEASONALITY TARC anticipates that its operations will be subject to significant fluctuations in seasonal demand. In TARC's markets, demand for gasoline is typically higher during the first and second quarters of TARC's fiscal year. During winter months, demand for heating oil increases. The refinery is designed, upon completion of the Capital Improvement Program, to change its product yields to take advantage of seasonal demands. FLUCTUATION IN PRICES Factors that are beyond the control of TARC may cause the cost of crude oil purchased by TARC and the price of refined products sold by TARC to fluctuate widely. Although prices of crude oil and refined petroleum products generally move in the same direction, prices of refined products often do not respond immediately to changes in crude oil costs. An increase in market prices for crude oil or a decrease in market prices for refined products could have an adverse impact on TARC's earnings and cash flow. COMPETITION The industry in which TARC operates is highly competitive. TARC primarily competes with refiners in the Gulf Coast region, many of which are owned by large, integrated oil companies which, because of their more diverse operations, stronger capitalizations or crude oil supply arrangements, are better able than TARC to withstand volatile industry conditions, including shortages or excesses of crude oil or refined products or intense price competition. The principal competitive factors affecting TARC's refining operations are the quality, quantity and delivered costs of crude oil and other refinery feedstocks, refinery processing efficiency, mix of refined products, refined product prices and the cost of delivering refined products to markets. Competition also exists between the petroleum refining industry and other industries supplying energy and fuel to industrial, commercial and individual consumers. EMPLOYEES As of January 31, 1998, TARC had approximately 450 employees and will employ additional personnel as required by its operations and may engage the services of engineering and other consultants from time to time. Currently, none of TARC's employees is a party to a collective bargaining agreement. Since July 1994, Southeast Louisiana Contractors of Norco, Inc. ("Southeast Contractors"), a subsidiary of TransAmerican, has provided construction personnel to TARC in connection with construction at the refinery. Southeast Contractors will continue to provide construction personnel to TARC as required to implement the Capital Improvement Program. These construction workers are temporary employees, and the number and composition of the workforce will vary throughout the reactivation of the refinery during the Capital Improvement Program. Southeast Contractors charges TARC for the direct costs it incurs, which consist solely of employee payroll and benefits plus administrative costs and fees. Such administrative costs and fees charged to TARC may be up to $2 million per year. As of January 31, 1998, Southeast Contractors was providing approximately 2,500 construction workers to TARC. The Equal Employment Opportunity Commission (the "EEOC") has initiated an investigation into the employment practices of TARC and Southeast Contractors alleging discriminatory hiring and promotion practices. See "-- Legal Proceedings." ENVIRONMENTAL MATTERS See Note 14 of Notes to Financial Statements for a discussion of environmental matters affecting TARC. 8 11 OTHER GOVERNMENTAL REGULATIONS TARC must also comply with federal and state laws and regulations promulgated by the Department of Transportation for the movement of volatile and flammable materials, the U.S. Coast Guard for marine operations and oil spill prevention and the Occupational Safety and Health Administration ("OSHA") for worker and job site safety. To comply with OSHA regulations, TARC must conduct extensive Process Safety Management and Hazardous Operations reviews prior to placing units into service. TARC has budgeted funds in the Capital Improvement Program to comply with all of these requirements. ITEM 2. PROPERTIES TARC owns the approximately 457-acre site on which the refinery and tank storage facility are located. TARC also owns approximately 500 acres of wetlands adjacent to the refinery site. TARC leases office space in Houston, Texas from TransTexas. TITLE INSURANCE TARC has obtained a lender's title insurance policy in the amount of $859 million for the benefit of the Trustee under the TEC Notes Indenture (the "Trustee") to insure against certain claims made against title to the refinery parcel site. The title insurance policy is reinsured through various title insurance companies in the United States. The ability to successfully recover under the policy is dependent on the creditworthiness of the title company and its reinsurers at the time of the claim and any defenses that the title insurers and its reinsurers may have. The title insurance policy does not insure TARC or the Trustee for defects, liens, encumbrances, adverse claims or other matters known to TARC that affect the validity of the mortgage or title to the refinery. There can be no assurance that the amount of title insurance will be sufficient to cover any losses incurred by TARC or the Trustee as a result of a title defect impairing the ability to use the refinery site or that the title insurers will be able to fulfill their financial obligations under the title insurance policy. The title insurance policy contains customary exceptions to coverage, including taxes not yet due and payable, riparian rights and numerous servitudes, rights of way, rights of access and other encroachments in favor of utilities, railroads, pipelines and adjacent refineries and tank farms, as well as exceptions for (i) government claims with respect to, and public rights to use, TARC's property located between the Mississippi River and the road upon which pipe racks and TARC's docking facilities are located, (ii) a right of first refusal in favor of an adjacent landowner with respect to a certain portion of property which, in the event exercised, may require TARC to relocate at its expense certain pipelines that connect various refinery parcels, (iii) tax benefits that have been conveyed to certain tax lessors, (iv) the priority of liens that may be filed by materialmen and mechanics in connection with the Capital Improvement Program and (v) any rights of creditors pursuant to federal or state bankruptcy and insolvency laws, which rights may affect the enforceability of the mortgage securing the TARC Intercompany Loan. ITEM 3. LEGAL PROCEEDINGS See Note 14 of Notes to Financial Statements for a discussion of TARC's legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of TARC's security holders during the three months ended January 31, 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for TARC's common stock. On April 30, 1998, there was one holder of TARC's common stock. 9 12 TARC has not paid any cash dividends on its capital stock since inception. TARC's ability to pay dividends is restricted by TARC's debt instruments and will depend in part upon TARC's debt levels. In determining whether to declare and pay a dividend, the Board of Directors will consider various other factors, including TARC's capital requirements and financial condition. ITEM 6. SELECTED FINANCIAL DATA On January 29, 1996, TARC changed its fiscal year end for financial reporting purposes from July 31 to January 31. The following table sets forth selected financial data of TARC as of and for each of the three years ended January 31, 1998, the six months ended January 31, 1996 and 1995 and each of the three years ended July 31, 1995. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto. The financial data for fiscal year ended July 31, 1993 represent the results of operations and financial position of TARC prior to the reactivation of the refinery. During this period, TARC had only maintenance expenses and lease income from storage facilities. The data for the year ended July 31, 1994 reflects limited operations of the refinery and expenses related to reactivation of portions of the refinery. The No. 2 Vacuum Unit was operated intermittently between March 1994 and January 1997. TARC does not consider its historical results to be indicative of future results.
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED JULY 31, ---------------------------------- ------------------- ------------------------------ 1998 1997 1996 1996 1995 1995 1994 1993 --------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Product sales................ $ -- $ 10,857 $176,229 $107,237 $ 71,035 $140,027 $174,143 $ -- Other........................ 2,828 -- 1 -- 551 552 3,035 5,178 --------- -------- -------- -------- -------- -------- -------- -------- Total revenues......... 2,828 10,857 176,230 107,237 71,586 140,579 177,178 5,178 Operating costs and expenses................... 30,030 54,004 206,798 121,770 86,383 171,411 187,208 13,238 General and administrative expenses(1)................ 19,196 11,848 12,610 7,438 8,442 13,614 4,496 11,341 --------- -------- -------- -------- -------- -------- -------- -------- Operating loss............... (46,398) (54,995) (43,178) (21,971) (23,239) (44,446) (14,526) (19,401) Equity in income (loss) before extraordinary item of TransTexas.............. 44,552 12,325 (2,584) (156) -- (2,428) -- -- Other income (expense)....... (15,251) 52,076(4) (9,999) (3,944) 89 (5,966) (2,827) 28 Extraordinary items (2)...... (94,911) -- (11,497) -- -- (11,497) -- -- Net income (loss)............ (112,008) 9,406 (67,258) (26,071) (23,150) (64,337) (17,353) (19,373) Net income (loss) per common share:(3) Basic...................... (3.73) 0.31 (2.24) (0.87) (0.77) (2.14) (0.58) (0.65) Diluted.................... (3.73) 0.25 (2.24) (0.87) (0.77) (2.14) (0.58) (0.65) Dividends declared per common share(5)................... -- -- -- -- -- -- -- --
JANUARY 31, JULY 31, ------------------------------------------- ----------------------------- 1998 1997 1996 1995 1995 1994 1993 ---------- -------- -------- -------- -------- -------- ------- BALANCE SHEET DATA: Working capital (deficit)............. $ 70,501 $(40,814) $(17,707) $(35,509) $ 5,965 $(16,838) $(1,494) Total assets.......................... 1,195,449 564,241 518,323 229,462 499,879 176,327 70,900 Total long-term liabilities........... 979,805 440,775 368,091 112,719 352,696 45,373 64,512 Stockholder's equity.................. 160,408 81,363 71,957 77,250 87,837 100,400 4,253
- --------------- (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) Represents loss on early extinguishment of debt for the year ended January 31, 1998 and TARC's equity in the early extinguishment of debt at TransTexas for the years ended January 31, 1998 and 1996 and July 31, 1995. 10 13 (3) Gives retroactive effect to a 30,000-for-1 stock split effected in July 1994. (4) Includes a gain of $56.2 million related to the sale of 4.55 million shares of TransTexas stock in March 1996. (5) TARC's debt instruments contain certain restrictions with respect to the payment of dividends on TARC's common stock. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with TARC's financial statements and notes thereto. RESULTS OF OPERATIONS General TARC's refinery was inoperative from January 1983 through February 1994. During this period, TARC's revenues were derived primarily from tank rentals and its expenses consisted of maintenance and repairs, tank rentals, general and administrative expenses and property taxes. The No. 2 Vacuum Unit was operated intermittently between March 1994 and January 1997. TARC may operate the No. 2 Crude Unit and the No. 2 Vacuum Unit if market conditions are favorable. TARC's decision to commence or suspend operations will depend on the availability of working capital, current operating margins and the need to tie-in units as they are completed. TARC does not consider its historical results to be indicative of future results. TARC's results of operations are dependent on the operating status of certain units within its refinery, which determines the types of feedstocks processed and refined product yields. The results are also affected by the unit costs of purchased feedstocks and the unit prices of refined products, which can vary significantly. The Capital Improvement Program is designed to significantly change TARC's throughput capacity, the feedstocks processed, and refined product yields. TARC believes, based on current estimates of refining margins and costs of the expansion and modification of the refinery, that future undiscounted cash flows will be sufficient to recover the cost of the refinery over its estimated useful life. Management believes there have been no events or changes in circumstances that would require the recognition of an impairment loss. However, due to the inherent uncertainties in estimating future refining margins, and in constructing and operating a large-scale refinery, there can be no assurance that TARC will ultimately recover the cost of the refinery. Management believes that the book value of the refinery is in excess of its current estimated fair market value. Year Ended January 31, 1998, Compared with the Year Ended January 31, 1997 There were no product sales for the year ended January 31, 1998 as compared to $10.9 million for the year ended January 31, 1997, due primarily to TARC not operating the No. 2 Vacuum Unit since January 1997 and TARC's use during fiscal 1998 of processing arrangements pursuant to which TARC processed feedstocks owned by third parties (as opposed to TARC's purchase of feedstock and sale of refined product). Other revenues of $2.8 million for the year ended January 31, 1998 resulted primarily from rental income from TARC's tank storage facility acquired in September 1997. There were no costs of products sold for the year ended January 31, 1998 as compared to $11.5 million for the year ended January 31, 1997, due primarily to TARC not operating the No. 2 Vacuum Unit since January 1997 and TARC's use during fiscal 1998 of processing arrangements pursuant to which TARC processed feedstocks owned by third parties (as opposed to TARC's purchase of feedstock and sale of refined product). During 1997 and 1998, TARC entered into other processing arrangements whereby TARC did not take title to feedstocks or refined products but received a fee based on margins, if any, realized by the counterparty to the arrangement. TARC retained all market and production risks related to barrels processed. These 11 14 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 since January 1997, a $1.9 million decrease in labor costs, and a decrease of $1.9 million in tank rentals due to the acquisition of a tank storage facility adjacent to the refinery and the settlement of a tank rental dispute during 1996. Depreciation and amortization expense for the year ended January 31, 1998 increased $1.2 million to $8.4 million from $7.2 million for the year ended January 31, 1997, primarily due to depreciation related to the tank storage facility acquired in September 1997. General and administrative expenses increased $7.4 million to $19.2 million for the year ended January 31, 1998 from $11.8 million for the year ended January 31, 1997, primarily due to a charge to operations of approximately $2.2 million of certain intangible costs, increased fees of approximately $3.7 million related to a new services agreement entered into among TransAmerican, TEC, TARC and TransTexas and increased professional fees related to the modification and issuance of debt. Taxes other than income taxes for the year ended January 31, 1998 decreased $0.8 million to $3.4 million from $4.2 million for the year ended January 31, 1997, primarily due to decreased property tax expense. Loss on purchase commitments for the year ended January 31, 1998 consists of a $7.8 million loss related to a commitment to purchase 0.6 million barrels of feedstock. These barrels have been sold to a third party and the Company intends to subject them to a processing agreement with the third party. TARC remains subject to market risk related to these barrels. Interest income for the year ended January 31, 1998 increased $5.0 million as compared to the year ended January 31, 1997, primarily due to the investment of proceeds from the TARC Intercompany Loan and Senior Subordinated Notes. Interest expense for the year ended January 31, 1998 increased $39.9 million, primarily due to interest on the TARC Intercompany Loan and Senior Subordinated Notes. During the year ended January 31, 1998, TARC capitalized approximately $93.0 million of interest related to property and equipment additions at TARC's refinery compared to $68.8 million for the year ended January 31, 1997. The increase was primarily due to higher capital spending. Equity in income of TransTexas before extraordinary item for the year ended January 31, 1998 increased to $44.6 million as compared to $12.3 million for the year ended January 31, 1997, due primarily to a $543 million gain on the sale by TransTexas of a subsidiary. In September 1997, TARC sold approximately 8.5 million shares of TransTexas common stock pursuant to the TransTexas share repurchase program. TARC received $136.2 million in connection with the repurchase, of which $124.5 million (representing the excess of the cash received over TARC's carrying value of the stock) was recorded as a capital contribution. TARC recognized equity in an extraordinary item of TransTexas of $(10.2) million for the year ended January 31, 1998. The extraordinary loss of TransTexas is attributable to a loss on the early extinguishment of debt as a result of the repurchase by TransTexas of its Senior Secured Notes and an exchange offer by TransTexas for its Subordinated Notes. The gain on the sale of TransTexas stock of $56.2 million for the year ended January 31, 1997 was a result of TARC's sale of 4.55 million shares of TransTexas common stock to third parties in March 1996. In April 1998, TARC distributed its remaining shares of TransTexas common stock to TEC. The additional loss on the early extinguishment of debt of $84.8 million for the year ended January 31, 1998 is a result of the completion of the TARC Notes Tender Offer as described in Note 8 of Notes to Financial Statements. 12 15 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. 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. 13 16 Depreciation and amortization expense for the six months ended January 31, 1996 increased $0.5 million to $3.2 million from $2.7 million for the same period in 1995, primarily due to the transfer of certain terminal facilities and tankage equipment from construction in progress to depreciable assets during the 1996 period. General and administrative expense for the six months ended January 31, 1996, decreased $1.0 million to $7.4 million from $8.4 million for the same period in 1995, primarily as a result of a $2.5 million reduction in litigation accruals, partially offset by an increase in payroll of $1.1 million arising from operations support requirements. Taxes other than income taxes for the six months ended January 31, 1996 decreased $1.4 million to $0.7 million from $2.1 million for the same period in 1995, primarily due to decreased property tax expense. Interest income for the six month period ended January 31, 1996 increased $2.3 million compared to the same period in 1995 due primarily to interest earned on long-term debt proceeds held in a disbursement account. Interest expense for the six month period ended January 31, 1996 increased $28.6 million due to interest accrued on long-term debt issued in February 1995, amortization of debt issue costs and financing costs associated with product purchases. During the six months ended January 31, 1996, TARC capitalized $26.2 million of interest related to construction activities associated with the 1995 Program. LIQUIDITY AND CAPITAL RESOURCES Although TARC may operate the No. 2 Crude Unit and the No. 2 Vacuum Unit if it obtains a favorable processing arrangement, TARC anticipates that, until completion of the Delayed Coking Unit, its liquidity and capital needs will be limited to expenditures for the Capital Improvement Program, general and administrative expenses and refinery maintenance costs. TARC estimates that capital expenditures for the Capital Improvement Program will be $256 million and $0, respectively, during the fiscal years ending January 31, 1999 and 2000. TARC currently estimates that Capital Improvement Program costs may increase by as much as $45 million over the $427 million originally estimated. Although there can be no assurance, TARC believes that it will have cash sufficient to fund the remaining construction. See "Business -- Capital Improvement Program -- Capital Budget Status" and "-- Completion Status." If engineering problems, cost overruns or delays occur and other financing sources are not available, TARC may not be able to complete both phases of the Capital Improvement Program. TARC has historically incurred losses and negative cash flow from operating activities as a result of limited refinery operations that did not cover the fixed costs of maintaining the refinery, increased working capital requirements (including debt service) and losses on refined product sales and processing arrangements. There is no assurance that TARC can complete the Capital Improvement Program, fund its future working capital requirements or achieve positive cash flow from operations. As a result, there is substantial doubt about TARC's ability to continue as a going concern. The Financial Statements do not include any adjustments that might result from the outcome of these uncertainties. On June 13, 1997, TEC completed a private offering (the "TEC Notes Offering") of $475 million aggregate principal amount of 11 1/2% Senior Secured Notes due 2002 (the "TEC Senior Secured Notes") and $1.13 billion aggregate principal amount of 13% Senior Secured Discount Notes due 2002 (the "TEC Senior Secured Discount Notes" and, together with the TEC Senior Secured Notes, the "TEC Notes") for net proceeds of approximately $1.3 billion. With a portion of the proceeds of the TEC Notes Offering, TEC made an intercompany loan to TARC in the original amount of $676 million (the "TARC Intercompany Loan"). The TARC Intercompany Loan will accrete principal at the rate of 16% per annum, compounded semi-annually until June 15, 1999 to a final accreted value of $920 million, and cash interest will thereafter accrue at a rate of 16% per annum, payable semi-annually. The TARC Intercompany Loan will mature on June 1, 2002. The TARC Intercompany Loan Agreement contains certain restrictive covenants including, among others, limitations on incurring additional debt, asset sales, dividends and transactions with affiliates. If TARC's cash flow from operations is insufficient to pay interest as it becomes payable on the TARC Intercompany Loan, TARC may be required to attempt to sell debt or equity securities of TARC. There can be no assurance that proceeds from such sales would be 14 17 adequate to pay interest due. TARC used approximately $103 million of the proceeds from the TARC Intercompany Loan to repay certain indebtedness, including $36 million of senior secured notes issued in March 1997 and $66 million of advances and notes payable owed to an affiliate, and used approximately $437 million to complete the TARC Notes Tender Offer described below. Remaining proceeds have been or will be used for the Capital Improvement Program described in Note 2 of Notes to Financial Statements and for general corporate purposes. In June 1997, TransTexas implemented a share repurchase program pursuant to which it repurchased approximately 3.9 million shares of common stock from public stockholders for an aggregate purchase price of approximately $61.4 million, and approximately 12.6 million shares from TARC and TEC for an aggregate purchase price of approximately $201 million. TARC received $136.2 million of the purchase price, of which $124.5 million (representing the excess of the cash received over TARC's carrying value of the stock) was recorded as a capital contribution. The amounts received by TEC and TARC were deposited in the TARC Disbursement Account. As of January 31, 1998, TARC and TEC had deposited an aggregate of approximately $529 million into accounts (collectively, the "TARC Disbursement Account") from which disbursements are made pursuant to a disbursement agreement, as amended (the "Disbursement Agreement") among TARC, TEC, the TEC Indenture Trustee, Firstar Bank of Minnesota, N. A., as Disbursement Agent, and Baker & O'Brien, Inc., as Construction Supervisor. See Note 3 of Notes to Financial Statements. Of these funds, $427 million was designated for the Capital Improvement Program, approximately $25.5 million was designated for general and administrative expenses, $7 million was designated for outstanding accounts payable, $50 million was designated for working capital upon completion of the Delayed Coking Unit and certain supporting units and $19 million was designated for the payment of interest on, or the redemption, purchase, defeasance or other retirement of, the outstanding TARC Notes. There is no assurance that the funds deposited in the TARC Disbursement Account will be adequate for their designated purposes. As of January 31, 1998, $225 million had been disbursed to TARC out of the TARC Disbursement Account for use in the Capital Improvement Program, $18 million for accounts payable and general and administrative expenses and $19 million for the payment of interest on, and the redemption, repurchase and defeasance of the TARC Notes. On June 13, 1997, TARC completed a tender offer (the "TARC Notes Tender Offer") for the (i) TARC Mortgage Notes for 112% of their principal amount (plus accrued and unpaid interest) and (ii) TARC Discount Notes for 112% of their accreted value. TARC Mortgage Notes and TARC Discount Notes with an aggregate carrying value of $423 million were tendered and accepted by TARC at a cost to TARC of approximately $437 million (including accrued interest, premiums and other costs). As a result of the TARC Notes Tender Offer, $22.8 million in debt issuance costs were written off and TARC recorded a total extraordinary charge of $84.8 million during the year ended January 31, 1998. As of January 31, 1998, TARC Mortgage Notes and TARC Discount Notes with a carrying value of approximately $14.4 million remained outstanding. On January 14, 1998, TARC called for redemption on February 17, 1998 approximately $7 million in aggregate principal amount of TARC Notes pursuant to the terms of the indenture governing the TARC Notes. On January 16, 1998, TARC deposited pursuant to an irrevocable trust agreement approximately $9.8 million for defeasance of the remaining TARC Notes outstanding after the redemption. The deposited funds are sufficient to pay the principal of the remaining TARC Notes and interest thereon from the date of deposit to and including the final redemption date, as well as a call premium of 6%. The final redemption date is February 15, 1999. On December 30, 1997, TARC issued in a private offering 175,000 Units consisting of $175 million in aggregate principal amount of 16% Series A Senior Subordinated Notes due 2003 (the "Series A Subordinated Notes") and 175,000 warrants (the "December 1997 Warrants") to purchase 2,335,245 shares of TARC common stock. Net proceeds to TARC, after deducting fees and expenses of approximately $8 million, were approximately $167 million. Net proceeds of $8.2 million from the sale of the Units was allocated to the December 1997 Warrants. TARC deposited $119 million of the net proceeds into the TARC Disbursement Account for use in the Capital Improvement Program and deposited $42 million into an interest 15 18 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. 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. Net proceeds to TARC, after deducting fees and expenses of approximately $1.2 million, were approximately $26.2 million. Net proceeds of approximately $2.8 million from the sale of the Units was allocated to the March 1998 Warrants. TARC deposited $6.0 million into an interest reserve account for interest payments on the Series C 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. In April 1996, TARC entered into a processing agreement with a third party to process feedstocks. Under the terms of the agreement, the processing fee earned by TARC is based on the margin, if any, earned by the third party from product sales, after deducting all of its related costs such as feedstock acquisition, hedging, transportation, processing and inspections plus a commission for each barrel processed. As of January 31, 1998, TARC has processed 6.4 million barrels of feedstocks under this agreement. TARC also entered into processing agreements with this third party to process approximately 1.1 million barrels of the third party's feedstocks for a fixed price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded income (loss) from processing agreements of $1.4 million and $(7.1) million, respectively. As of January 31, 1998 and 1997, TARC was storing approximately 0.7 million and 1.0 million barrels, respectively, of feedstock and intermediate or refined products pursuant to these processing agreements. Included in the 0.7 million barrels of product stored at the refinery as of January 31, 1998, is approximately 0.6 million barrels of a feedstock owned by a third party related to a purchase commitment entered into in April 1997. For the year ended January 31, 1998, TARC incurred a loss of approximately $7.8 million related to this purchase commitment and remains subject to market risk for these barrels. In July and September 1997, TARC received advances from TEC in the aggregate amount of $46 million. In November and December 1997, TARC repaid approximately $31 million in principal, and in December 1997 paid approximately $2.9 million in interest to TEC. See Note 9 of Notes to Financial Statements. In September 1997, TARC purchased a tank storage facility adjacent to the refinery for a cash purchase price of $40 million (which does not include a $3.1 million liability recorded for environmental remediation, as discussed below). Environmental investigations conducted by the previous owner of the facilities have indicated soil and groundwater contamination in several areas of the property. As a result, the former owner submitted to the Louisiana Department of Environmental Quality (the "LDEQ") plans for the remediation of any significant indicated contamination in such areas. TARC has analyzed these investigations and has carried out further Phase II Environmental Assessments to verify their results. TARC intends to incorporate any required remediation into its ongoing work at the refinery. In connection with the purchase of the facilities, TARC agreed to indemnify the seller for all cleanup costs and certain other damages resulting from contamination on the property, and created a $5 million escrow account to fund required remediation costs and indemnification claims by the seller. As a result of TARC's Phase II Environmental Assessments, TARC believes that the amount in escrow should be sufficient to fund the remediation costs associated with identified contamination; however, because the LDEQ has not yet approved certain of the remediation plans, there can be no assurance that the funds set aside in the escrow account will be sufficient to pay all required remediation costs. As of January 31, 1998, TARC has recognized a liability of $3.1 million for this contingency. On December 10, 1997, TARC issued to an unaffiliated third party a 13% Senior Secured Note due 2002 (the "Acquisition Note") in the principal amount of $36 million to finance a portion of the purchase price of the tank storage facility purchased in September 1997. The Acquisition Note is secured by a mortgage on the tank storage facility, and is governed by a Note Purchase Agreement containing restrictive covenants 16 19 substantially similar to those contained in the TARC Intercompany Loan and TEC Indenture. The Acquisition Note bears interest at 13%, payable semiannually on June 15 and December 15, and matures on December 15, 2002. TARC deposited $7 million in an interest reserve account for interest payments on the Acquisition Note through June 15, 1999. The TEC Notes Indenture permits TARC to obtain a revolving credit facility but places certain limitations on TARC's ability to incur other indebtedness. In order to operate the refinery at expected levels after the completion of Phase I of the Capital Improvement Program, TARC will require additional working capital. Although TARC and a lender have engaged in discussions concerning the terms of a revolving credit facility, there can be no assurance TARC will be able to obtain such a facility. Environmental compliance and permitting issues are an integral part of the capital expenditures anticipated in connection with the expansion and modification of the refinery. TARC does not expect to incur any additional significant expenses for environmental compliance during fiscal 1998 or fiscal 1999 other than those budgeted for the Capital Improvement Program. There is no assurance, however, that costs incurred to comply with environmental laws will not have a material adverse effect on TARC's future financial condition, results of operations or cash flow. TARC also has contingent liabilities with respect to certain legal proceedings as more fully described in Note 14 of Notes to Financial Statements. INFLATION AND CHANGES IN PRICES TARC's revenues and feedstock costs have been, and will continue to be, affected by changes in the prices of petroleum and petroleum products. TARC's ability to obtain additional capital is also substantially dependent on refining margins, which are subject to significant seasonal, cyclical and other fluctuations that are beyond TARC's control. From time to time, TARC enters into futures contracts, options on futures, swap agreements and forward sale agreements for crude and refined products intended to protect against a portion of the price risk associated with price declines from holding inventory of feedstocks and refined products, or for fixed price purchase commitments. TARC's policy is not to enter into fixed price or other purchase commitments in excess of anticipated processing requirements. TARC believes that these current and anticipated futures transactions do not and will not constitute speculative trading as specified under and prohibited by the TEC Notes Indenture. RECENTLY ISSUED PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and display of comprehensive income and its components in financial statements. This statement will be adopted by TARC effective February 1, 1998. TARC believes that adoption of this statement will not have a material impact on its financial statements. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start Up Activities," ("SOP 98-5") which provides guidance on the financial reporting of start-up costs and organization costs. This statement of position will be adopted by TARC effective February 1, 1998. Implementation of the statement requires start-up activities, such as those related to the Capital Improvement Program, to be expensed as incurred. IMPACT OF YEAR 2000 ISSUE The year 2000 issue relates to computer programs or computerized equipment designed to use two digits rather than four digits to define the applicable year. As a result, computer systems with time-sensitive software may not accurately calculate, store or use a date subsequent to December 31, 1999. This could result in system failures or miscalculations and disruptions of operations, including among other things, a temporary inability to process transactions or engage in other normal business activities. In June 1997, management began a Company-wide program to prepare its computer systems for year 2000 compliance. In January 1998, TARC began implementation of new client/server based systems which 17 20 are anticipated to be completed by January 1999. TARC estimates the cost of upgrading its computer systems to be approximately $2 million. There can be no assurance that TARC will timely complete the implementation of the new systems. The year 2000 issue should not impact TARC's ability to continue refining, storage or sales activities. FORWARD-LOOKING STATEMENTS Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, are included throughout this report. All statements, other than statements of historical fact, included in this Annual Report on Form 10-K regarding TARC's financial position, business strategy, plans and objectives of management for future operations and expansion and modification of the refinery, including, but not limited to, words such as "anticipates," "expects," "believes," "estimates," "intends," "projects" and "likely" indicate forward-looking statements. TARC's management believes that its current views and expectations are based on reasonable assumptions; however, there are significant risks and uncertainties that could significantly affect expected results. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, engineering problems, work stoppages, cost overruns, personnel or materials shortages, fluctuations in commodity prices for petroleum and refined products, casualty losses, conditions in the capital markets and competition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 18 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ---- Report of Independent Accountants........................... 20 Financial Statements: Balance Sheet............................................. 21 Statement of Operations................................... 22 Statement of Stockholder's Equity......................... 23 Statement of Cash Flows................................... 24 Notes to Financial Statements............................. 25
19 22 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 20 23 TRANSAMERICAN REFINING CORPORATION BALANCE SHEET (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) ASSETS
JANUARY 31, ----------------------- 1998 1997 ---------- --------- Current assets: Cash and cash equivalents................................. $ 10,021 $ 613 Restricted cash held in disbursement accounts............. 71,563 -- Cash restricted for interest.............................. 32,823 -- Investments held in trust................................. 9,114 -- Accounts receivable....................................... 870 -- Receivable from affiliates................................ -- 22 Other..................................................... 1,346 654 ---------- --------- Total current assets.............................. 125,737 1,289 ---------- --------- Property and equipment...................................... 939,780 555,816 Less accumulated depreciation and amortization.............. 25,257 16,930 ---------- --------- Net property and equipment........................ 914,523 538,886 ---------- --------- Restricted cash held in disbursement accounts............... 60,166 -- Cash restricted for interest................................ 16,348 -- Investments held in trust................................... 8,591 -- Receivable from affiliates.................................. 1,655 393 Other assets, net........................................... 68,429 23,673 ---------- --------- $1,195,449 $ 564,241 ========== ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 32,022 $ 20,033 Payable to affiliates..................................... 6,976 7,094 Accrued liabilities....................................... 9,528 14,976 Current maturities of long-term debt...................... 6,710 -- ---------- --------- Total current liabilities......................... 55,236 42,103 ---------- --------- Payable to affiliates....................................... 3,825 6,674 Long-term debt, less current maturities..................... 210,666 365,730 Notes payable to affiliate.................................. 760,266 46,589 Investment in TransTexas.................................... -- 20,706 Other....................................................... 5,048 1,076 Commitments and contingencies (Note 14)..................... -- -- Stockholder's equity: Common stock, $0.01 par value, 100,000,000 shares authorized, 30,000,000 shares issued and outstanding... 300 300 Additional paid-in capital................................ 439,566 248,513 Accumulated deficit....................................... (279,458) (167,450) ---------- --------- Total stockholder's equity........................ 160,408 81,363 ---------- --------- $1,195,449 $ 564,241 ========== =========
The accompanying notes are an integral part of the financial statements. 21 24 TRANSAMERICAN REFINING CORPORATION STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED ---------------------------------- ---------------------- JULY 31, 1998 1997 1996 1996 1995 1995 --------- -------- ----------- -------- ----------- ---------- (UNAUDITED) (UNAUDITED) 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 extraordinary 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) ========= ======== ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements. 22 25 TRANSAMERICAN REFINING CORPORATION STATEMENT OF STOCKHOLDER'S EQUITY (IN THOUSANDS)
COMMON STOCK TOTAL --------------- ADDITIONAL ACCUMULATED STOCKHOLDER'S SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY ------ ------ --------------- ----------- ------------- 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 ====== ==== ======== ========= =========
The accompanying notes are an integral part of the financial statements. 23 26 TRANSAMERICAN REFINING CORPORATION STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED ---------------------------------- ----------------------- JULY 31, 1998 1997 1996 1996 1995 1995 --------- -------- ----------- --------- ----------- ---------- (UNAUDITED) (UNAUDITED) 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..................... (172,516) (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..................... 221,949 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 ========= ======== ========= ========= ======== =========
The accompanying notes are an integral part of the financial statements. 24 27 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. 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. 25 28 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. Debt Issue Costs Debt issue costs are deferred and amortized to interest expense over the scheduled maturity of the debt utilizing the interest method. 26 29 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Stockholder's Equity Stockholder's equity was retroactively adjusted to reflect a 30,000-for-1 stock split which was effective in July 1994. In July 1994, TARC increased its authorized capital to 100,000,000 shares and decreased the par value of its common stock from $1.00 to $0.01. Defined Contribution Plan TARC, through its parent company, TransAmerican, maintains a defined contribution plan, which incorporates a "401(k) feature" as allowed under the Internal Revenue Code. All investments are made through Massachusetts Mutual Life Insurance Company. Employees who are at least 21 years of age and have completed one year of credited service are eligible to participate on the next semiannual entry date. TARC matches 10%, 20% or 50% of employee contributions up to a maximum of 3% of the participant's compensation, based on years of plan participation. All contributions are currently funded. TARC recognized approximately $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. 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. 27 30 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Fair Value of Financial Instruments TARC includes fair value information in the notes to the financial statements when the fair value of its financial instruments is different from the book value. TARC uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments. When the book value approximates fair value, no additional disclosure is made. Net Income (Loss) Per Share 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:
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED --------------------------- ------------------- JULY 31, 1998 1997 1996 1996 1995 1995 ------ ------ ----------- ------ ----------- ---------- (UNAUDITED) (UNAUDITED) 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 ====== ====== ====== ====== ====== ======
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. 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. 28 31 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. The Capital Improvement Program will be executed in two phases. In June 1997, TARC estimated that Phase I would be completed at a cost of $223 million, would be tested and operational by September 30, 1998 and would result in the refinery having the capacity to process up to 200,000 Bpd of sour crude oil. Phase II of the Capital Improvement Program includes the completion and start-up of the Fluid Catalytic Cracking Unit utilizing state-of-the-art MSCC(SM) technology and the installation of additional equipment expected to further improve operating margins by allowing for a significant increase in the refinery's capacity to produce gasoline. In June 1997, TARC estimated that Phase II would be completed at a cost of $204 million and would be tested and operational by July 31, 1999. TARC currently believes that actual expenditures may exceed the budget by as much as $45 million (of which $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 29 32 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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 30 33 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) $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):
JANUARY 31, -------------------- 1998 1997 ------ ------ Insurance prepayments....................................... $ 949 $ 603 Tax prepayments............................................. 335 -- Other....................................................... 62 51 ------ ------ $1,346 $ 654 ====== ======
5. PROPERTY AND EQUIPMENT The major components of property and equipment are as follows (in thousands of dollars):
ESTIMATED JANUARY 31, USEFUL LIFE -------------------- (YEARS) 1998 1997 ----------- -------- -------- 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 ======== ========
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. 31 34 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. OTHER ASSETS The major components of other assets are as follows (in thousands of dollars):
JANUARY 31, ------------------ 1998 1997 ------- ------- 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 ======= =======
TARC uses the straight-line method to amortize intangibles over the periods estimated to be benefited. During fiscal 1998, TARC charged to income $22.8 million in debt issue costs (see Note 8) and $2.2 million of intangible costs in connection with the acquisition of a tank storage facility. 7. ACCRUED LIABILITIES The major components of accrued liabilities are as follows (in thousands of dollars):
JANUARY 31, ----------------- 1998 1997 ------ ------- 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 ====== =======
8. LONG-TERM DEBT TARC's long-term debt is as follows (in thousands of dollars):
JANUARY 31, -------------------- 1998 1997 -------- -------- 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 ======== ========
32 35 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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 33 36 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 December 30, and mature on June 30, 2003. The March 1998 Warrants will be exercisable on or after December 30, 1998 at a price of $0.01 per share and expire on June 20, 2003. Net proceeds to TARC, after deducting fees and expenses of approximately $1.2 million, were approximately $26.2 million. Net proceeds of approximately $2.8 million from the sale of the Units was allocated to the March 1998 Warrants. TARC deposited $6 million into an interest reserve account for interest payments on the Series C Senior Subordinated Notes from December 30, 1997 through June 30, 1999. The remaining $20.2 million of net proceeds has been or will be used for general corporate purposes. The indenture governing the Series C Senior Subordinated Notes contains certain restrictive covenants, including, among others, limitations on incurring additional debt, asset sales, dividends and transactions with affiliates. The fair value of the TARC Notes was approximately $16 million and $404 million as of January 31, 1998 and 1997, respectively. The fair value of the Series A Subordinated Notes was approximately $182 million as of January 31, 1998. Fair value is based on quoted market prices. Aggregate maturities of long- term debt for the next five years are (in millions): fiscal year 1999 -- $7, 2000 -- $8, 2001 -- $0, 2002 -- $0 and 2003 -- $36. 34 37 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 9. NOTES PAYABLE TO AFFILIATES TARC's notes payable to affiliates are as follows (in thousands of dollars):
JANUARY 31, -------------------- 1998 1997 -------- -------- TARC Intercompany Loan...................................... $745,257 $ -- Note payable to affiliate................................... 15,009 46,589 -------- ------- $760,266 $46,589 ======== =======
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 outstanding Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, or, in the case of any such offer to purchase the Senior Secured Discount Notes prior to June 15, 1999, at a price equal to 101% of the accreted value thereof, in each case, to and including the date of purchase. Pursuant to the terms of the TARC Intercompany Loan, TEC may require TARC to pay a pro rata share of the purchase price paid by TEC in an offer to purchase pursuant to a Change of Control. 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. 35 38 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. INCOME TAXES Long-term deferred tax assets and liabilities are comprised of the following (in thousands of dollars):
JANUARY 31, ---------------------- 1998 1997 --------- --------- 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) --------- --------- $ -- $ -- ========= =========
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 TransAmerican's subsidiaries to pay to TransAmerican each year its allocable share of the federal income tax liabilities of the consolidated group ("Allocable Share"). The Tax Allocation Agreement provides for a reallocation of the group's consolidated federal income tax liabilities among the members if the IRS or the courts ultimately re-determine the group's regular tax or alternative minimum tax liability. In the event of an IRS audit or examination, the Tax Allocation Agreement generally gives TransAmerican the authority to compromise or settle disputes and to control litigation, subject to the approval of TARC, TEC or TransTexas, as the case may be, where such compromise or settlement affects the determination of the separate tax liability of that company. Under the Tax Allocation Agreement, each subsidiary's Allocable Share for each tax year will generally equal the amount of federal income tax it would have owed had it filed a separate federal income tax return for each year except that each subsidiary will be able to utilize net operating losses and credits of TransAmerican and the other members of the consolidated group effectively to defer payment of tax liabilities that it would have otherwise owed had it filed a separate federal income tax return. Each subsidiary will essentially pay the deferred taxes at the time TransAmerican (or the member whose losses or credits are utilized by such subsidiary) begins generating taxable income or tax. This will have the effect of deferring a portion of such subsidiary's tax liability to future years. The parties to the Tax Allocation Agreement amended such agreement in May 1997 to include additional affiliates as parties, and further amended the Tax Allocation Agreement in 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. 36 39 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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):
YEAR ENDED SIX MONTHS ENDED YEAR JANUARY 31, JANUARY 31, ENDED -------------------------------- --------------------- JULY 31, 1998 1997 1996 1996 1995 1995 -------- ------- ----------- ------- ----------- -------- (UNAUDITED) (UNAUDITED) 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 -------- ------- -------- ------- ------- -------- $ -- $ -- $ -- $ -- $ -- $ -- ======== ======= ======== ======= ======= ========
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. 37 40 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Summary financial information of TransTexas is as follows (in thousands of dollars):
JANUARY 31, ---------------------- 1998 1997 -------- ---------- 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 ======== ==========
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED --------------------------------- ---------------------- JULY 31, 1998 1997 1996 1996 1995 1995 -------- -------- ----------- -------- ----------- ---------- (UNAUDITED) (UNAUDITED) 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) ======== ======== ======== ======== ======== ========
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 38 41 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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 39 42 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) added to the interest paid by TransTexas on the TransTexas Intercompany Loan, will equal the amount of interest payable on the TEC Notes through December 15, 1997. Thereafter, the amount of fixed interest payable to TEC of $5.7 million per year will be proportioned semi-annually between TARC and TransTexas based on the average outstanding balance of TARC's note to TEC and the average outstanding balance of all notes between TransTexas and TEC. As of January 31, 1998, the principal amount payable by TARC to TEC pursuant to the advances was $15 million. During the year ended January 31, 1998, TARC recognized $3.1 million in interest expense pursuant to the advances of which approximately $0.2 million was payable to TEC at January 31, 1998. Included in the $3.1 million of interest expense is approximately $0.3 million paid to TEC for advances made to TransTexas during fiscal 1998. During the year ended January 31, 1998, TEC contributed $13.5 million to TARC for general corporate purposes pursuant to the Disbursement Agreement. 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. 40 43 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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):
SIX MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED -------------------------------- --------------------- JULY 31, 1998 1997 1996 1996 1995 1995 ------- -------- ----------- ------- ----------- ---------- (UNAUDITED) (UNAUDITED) 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 -- -- -- -- --
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. sec. 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 41 44 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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, 42 45 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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 43 46 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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). 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 44 47 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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, 45 48 TRANSAMERICAN REFINING CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) transportation, processing and inspections plus a commission for each barrel processed. As of January 31, 1998, TARC has processed 6.4 million barrels of feedstocks under this agreement. TARC also entered into processing agreements with this third party to process approximately 1.1 million barrels of the third party's feedstocks for a fixed price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded income (loss) from processing agreements of $1.4 million and $(7.1) million, respectively. As of January 31, 1998, TARC was storing approximately 0.7 million barrels of feedstock and intermediate or refined products pursuant to these processing agreements. Included in the 0.7 million barrels of product stored at the refinery as of January 31, 1998, is approximately 0.6 million barrels of feedstock owned by a third party related to a purchase commitment entered into in April 1997. For the year ended January 31, 1998, TARC incurred a loss of approximately $7.8 million related to this purchase commitment and remains subject to market risk for these barrels. Operating Leases As of January 31, 1998, TARC has long-term leases covering land and other property and equipment. Rental expense was approximately $2.2 million, $4.2 million, $1.9 million and $4 million, respectively, for the years ended January 31, 1998 and 1997, the six months ended January 31, 1996 and the year ended July 31, 1995. Future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of January 31, 1998, are as follows (in thousands of dollars): 1999........................................................ $ 309 2000........................................................ 309 2001........................................................ 281 2002........................................................ 258 2003........................................................ 200 Later years................................................. 1,163 ------ $2,520 ======
46 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT TARC's directors and executive officers are as follows:
NAME OFFICE AGE ---- ------ --- John R. Stanley......... Director, Chairman of the Board, President and Chief Executive Officer 59 R. Glenn McGinnis....... Vice President of Manufacturing 49 Gary L. Karr............ Vice President of Refining 49 John R. Stanley, Jr. ... Vice President of Administration 36 Ed Donahue.............. Vice President and Secretary 47 Donald B. Henderson..... Director 48 Thomas B. McDade........ Director 74
Set forth below is a description of the backgrounds of the directors and executive officers of TARC. John R. Stanley has been a director and Chief Executive Officer of TARC since September 1987 and a director and Chief Executive Officer of TEC since July 1994. Mr. Stanley is the founder, Chairman of the Board, Chief Executive Officer, and sole stockholder of TNGC Holdings Corporation, which is the sole stockholder of TransAmerican. He has operated TransAmerican since 1958. Mr. Stanley is the father of John R. Stanley, Jr. R. Glenn McGinnis has been the Vice President of Manufacturing of TARC since July 1995. Prior to joining TARC, Mr. McGinnis held senior refining and supply positions in Canada with Imperial Oil Limited, an affiliate of Exxon Corporation. Mr. McGinnis was with Imperial Oil Limited for 23 years. Gary L. Karr has been the Vice President of Refining of TARC since January 1994 and served as Refinery Manager for approximately eight years prior thereto. Mr. Karr has been with TransAmerican or a subsidiary of TransAmerican since 1971 in various positions. John R. Stanley, Jr. has served as Vice President of Administration of TARC since October 1995. From May 1992 until October 1995, he served as Manager of Audit and Security for TARC. Mr. Stanley is the son of John R. Stanley. Edwin B. Donahue has served as Vice President and Secretary of TARC since February 1997. Mr. Donahue also serves as Vice President, Chief Financial Officer and Secretary of TransTexas and TEC and as Vice President and Secretary of TransAmerican. Mr. Donahue has been employed in various positions with TransAmerican for over 21 years. Donald B. Henderson has been a director of TARC and of TEC since July 1994. Mr. Henderson is a partner in the law firm of Blackburn & Henderson. 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. Mr. Henderson served as a director of TransAmerican from 1985 until his resignation in February 1995. In April 1998, Mr. Henderson was charged with intoxication assault in connection with a traffic accident. Mr. Henderson has pleaded innocent and intends to vigorously defend these charges. Thomas B. McDade has been a director of TARC and of TEC since July 1994. He is also a director of TransTexas. Mr. McDade is primarily engaged in managing his personal investments and in providing consulting services in Houston, Texas. Mr. McDade served as a director of TransAmerican from 1985 until his resignation in February 1995. Prior to 1989, he served as a consultant to Texas Commerce Bancshares, Inc. and prior to July 1985, he served as Vice Chairman and Director of Texas Commerce Bancshares, Inc. and 47 50 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. 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 auditors' examinations of TARC's financial statements and review their reports. The Compensation Committee is composed of Messrs. Henderson and McDade. The purpose of the Compensation Committee is to determine the nature and amount of compensation of TARC's executive officers. DIRECTOR COMPENSATION Each director, other than John R. Stanley, receives an annual director's 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). ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation paid during the fiscal years ended January 31, 1998 and 1997, the six months ended January 31, 1996, and the fiscal year ended July 31, 1995 to TARC's Chief Executive Officer and each other executive officer of TARC whose total annual salary and bonus exceeded $100,000 in the fiscal year ended January 31, 1998 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------- FISCAL OTHER ANNUAL NAME AND PRINCIPAL POSITION IN TARC YEAR SALARY COMPENSATION(A) ----------------------------------- ------ -------- --------------- John R. Stanley (b).............................. 1998 $400,483 $4,346 Chief Executive Officer 1997 397,117 5,170 1996* 175,001 807 1995 369,521 4,500 R. Glenn McGinnis................................ 1998 $235,038 $ 950 Vice President of Manufacturing 1997 233,654 727 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
48 51 - --------------- * 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. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION TARC's compensation committee is composed of Messrs. McDade and Henderson. During the year ended January 31, 1998, none of the members of the compensation committee was an officer or employee of TARC. Blackburn & Henderson, a law firm of which Mr. Henderson is a partner, provides legal and other services to TransAmerican and its affiliates for an annual fee of $96,000 plus expenses. The TEC Notes Indenture prohibits TEC and its subsidiaries from paying compensation to Mr. Stanley in excess of $1.0 million per year, in the aggregate, from TEC and TransTexas and, following completion of Phase II, $1.0 million per year from TARC. SAVINGS PLAN TransAmerican maintains a long-term savings plan (the "Savings Plan") in which eligible employees of TARC and certain of its affiliates may elect to participate. Each employee becomes eligible to participate in the Savings Plan on January 1 or July 1 following the completion of one year of service with TARC or its participating affiliates and attainment of age 21. The Savings Plan is intended to constitute a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and contains a salary reduction arrangement described in Section 401(k) of the Code. Each participant may elect to reduce his compensation by a percentage equal to 2% to 15% and TARC will contribute that amount to the Savings Plan on a pre-tax basis on behalf of the participant. The Code limits the annual amount that a participant may elect to have contributed on his behalf on a pre-tax basis to the Savings Plan. For 1998, this limit is $10,000. TARC presently makes a matching contribution in an amount equal to 10%, 20% or 50% of the amount elected to be contributed by each participant on a pre-tax basis, up to a maximum of 3% of each participant's compensation, depending on whether the employee has been a participant in the Savings Plan for one year, two years or three years. Each participant also may elect to contribute up to 10% of his compensation to the Savings Plan on an after-tax basis. The Code imposes nondiscrimination tests on contributions made to the Savings Plan pursuant to participant elections and on TARC's matching contributions, and limits amounts which may be allocated to a participant's Savings Plan account each year. In order to satisfy the nondiscrimination tests, contributions made on behalf of certain highly compensated employees (as defined in the Code) may be limited. Contributions made to the Savings Plan pursuant to participant elections and matching contributions are at all times 100% vested. Contributions to the Savings Plan are invested, according to specified investment options selected by the participants, in investment funds maintained by the trustee of the Savings Plan. Generally, a participant's vested benefits will be distributed from the Savings Plan as soon as administratively practicable following a participant's retirement, death, disability or other 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. 49 52 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT TEC owns 30 million shares (100%) of TARC's outstanding common stock. TEC's address is 1300 North Sam Houston Parkway East, Suite 200, Houston, Texas 77032. Pursuant to the TARC Notes Indenture, all shares of TARC's common stock were pledged as of January 31, 1998 as collateral and were held by the trustee under the TARC Notes Indenture, First Union National Bank. On April 17, 1998, these shares of TARC common stock were released from the security interest under the TARC Notes Indenture in connection with the defeasance of the TARC Notes and are currently pledged 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to the stock transfer agreement dated February 23, 1995 (the "Stock Transfer Agreement") among TransAmerican, TEC and TARC, TransAmerican contributed to the capital of TEC (the "Stock Transfer") (i) all of the outstanding capital stock of TARC, and (ii) 55 million shares of common stock of TransTexas. TEC subsequently contributed 15 million of its shares of TransTexas common stock to TARC. Prior to the sale of the TARC Notes, TARC participated in TransAmerican's centralized cash management program. Funds required by TARC for daily operations and capital expenditures were advanced by TransAmerican. In October 1994, TransAmerican sold 5.25 million shares of TransTexas common stock. TransAmerican advanced approximately $50 million of the proceeds from these stock sales to TARC, of which approximately $20 million was used by TARC to repay a portion of the intercompany debt owed to TransAmerican, and the remaining $30 million of the net proceeds was used for working capital and general corporate purposes. TARC used approximately $30 million of the net proceeds of the sale of the TARC Notes to repay additional intercompany debt to TransAmerican. TransAmerican contributed to the capital of TARC (through TEC) all but $10 million of the remainder of TARC's intercompany debt owed to TransAmerican. In April 1995, TARC repaid the remaining $10 million of intercompany indebtedness owed to TransAmerican. In August 1995, TARC received an advance of $3 million from TransTexas, which TARC used to settle its remaining portion of certain litigation. In September 1995, TARC received an advance of $1.7 million from TransAmerican, which TARC used to purchase feedstock. In October 1995, TARC repaid these advances without interest. Additionally in October 1995, TARC received an advance of approximately $4 million from TransAmerican for working capital which it repaid in June 1997. In September 1995, TARC received an advance of $1 million from TransTexas, which TARC used to purchase feedstock. This advance was repaid by TARC without interest. In December 1995, TARC advanced $1 million to TransTexas. This advance was repaid to TARC with interest in December 1995. During 1995, TransAmerican acquired an office building which it subsequently sold to TransTexas in February 1996 for $4 million. In February 1996, TransAmerican advanced $4 million of the proceeds from this sale to TARC for working capital. TransTexas charges TARC approximately $61,000 in rent annually, of which approximately $117,000 was payable to TransTexas at January 31, 1998. 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. 50 53 From August 1993 to June 1997, TransTexas provided general commercial legal services and certain accounting services (including payroll, tax, and treasury services) to TARC and TEC for a fee of $26,000 per month pursuant to a services agreement. In June 1997, the services agreement was terminated. On June 13, 1997, a new services agreement was entered into among TransAmerican, TEC, TARC and TransTexas. Under the new services agreement, TransTexas provides accounting, legal, administrative and other services to TARC, TEC and TransAmerican and its affiliates. TransAmerican provides advisory services to TransTexas, TARC and TEC. TARC will pay to TransTexas approximately $300,000 per month for services rendered to, and for allocated expenses paid by TransTexas on behalf of, TARC and TEC. TEC and its subsidiaries will pay $2.5 million in the aggregate per year to TransAmerican for advisory services and benefits provided by TransAmerican. Pursuant to these agreements, TARC has recognized $4.0 million in service agreement expenses during the year ended January 31, 1998. As of January 31, 1998, $1.2 million and $1.6 million was payable to TransTexas and TransAmerican, respectively, pursuant to the services agreement. Southeast Contractors, a subsidiary of TransAmerican, provides construction personnel to TARC in connection with the Capital Improvement Program. These construction workers are temporary employees, and the number and composition of the workforce will vary throughout the Capital Improvement Program. Southeast Contractors charges TARC for the direct costs it incurs (which consist solely of employee payroll and benefits) plus administrative costs and fees of up to $2.0 million per year. Total labor costs charged by Southeast Contractors for the years ended January 31, 1998 and 1997, the six months ended January 31, 1996 and the year ended July 31, 1995 were $50.7 million, $14.1 million, $20.2 million and $15.5 million, respectively, of which $5.3 million and $1.8 million was payable at January 31, 1998 and 1997, respectively. TARC purchases natural gas from TransTexas on an interruptible basis. The total cost of natural gas purchased for the years ended January 31, 1998 and 1997, the six months ended January 31, 1996 and the year ended July 31, 1995 was approximately $0.4 million, $2.7 million, $1.4 million and $2.5 million, respectively. The payable to TransTexas for natural gas purchases at January 31, 1997 was $2.7 million. In July and September 1997, TEC advanced an aggregate of $46 million to TARC. All of the advances are governed by the terms of a promissory note that is due June 14, 2002 bearing interest at a rate that, when added to the interest paid by TransTexas on the TransTexas Intercompany Loan, will equal the amount of interest payable on the TEC Notes through December 15, 1997. Thereafter, the amount of fixed interest payable to TEC of $5.7 million per year will be proportioned semi-annually between TARC and TransTexas based on the average outstanding balance of TARC's note to TEC and the average outstanding balance of all notes between TransTexas and TEC. As of January 31, 1998, the principal amount payable by TARC to TEC pursuant to the advances was $15 million. During the year ended January 31, 1998, TARC recognized $3.1 million in interest expense pursuant to the advances of which approximately $0.2 million was payable to TEC at January 31, 1998. Included in the $3.1 million of interest expense is approximately $0.3 million paid to TEC for advances made to TransTexas during fiscal 1998. During the year ended January 31, 1998, TEC contributed $13.5 million to TARC for general corporate purposes pursuant to the Disbursement Agreement. 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 which he is paid an annual fee of $96,000 plus expenses. 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; 51 54 however, each member is severally liable for the consolidated federal income tax liability of the consolidated group. The Tax Allocation Agreement requires each of TransAmerican's subsidiaries to pay to TransAmerican each year its allocable share of the federal income tax liabilities of the consolidated group ("Allocable Share"). The Tax Allocation Agreement provides for a reallocation of the group's consolidated federal income tax liabilities among the members if the IRS or the courts ultimately re-determine the group's regular tax or alternative minimum tax liability. In the event of an IRS audit or examination, the Tax Allocation Agreement generally gives TransAmerican the authority to compromise or settle disputes and to control litigation, subject to the approval of TARC, TEC or TransTexas, as the case may be, where such compromise or settlement affects the determination of the separate tax liability of that company. Under the Tax Allocation Agreement, each subsidiary's Allocable Share for each tax year will generally equal the amount of federal income tax it would have owed had it filed a separate federal income tax return for each year except that each subsidiary will be able to utilize net operating losses and credits of TransAmerican and the other members of the consolidated group effectively to defer payment of tax liabilities that it would have otherwise owed had it filed a separate federal income tax return. Each subsidiary will essentially pay the deferred taxes at the time TransAmerican (or the member whose losses or credits are utilized by such subsidiary) begins generating taxable income or tax. This will have the effect of deferring a portion of such subsidiary's tax liability to future years. The parties to the Tax Allocation Agreement amended such agreement in connection with the Lobo Sale 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 Lobo Sale. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
PAGE ---- (1) Report of Independent Accountants........................... 20 Balance Sheet............................................... 21 Statement of Operations..................................... 22 Statement of Stockholder's Equity........................... 23 Statement of Cash Flows..................................... 24 Notes to Financial Statements............................... 25
(2) All schedules have been omitted because the information is either not required or is set forth in the financial statements or the notes thereto. (3) Exhibits 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).
52 55 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). 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).
53 56 4.12 -- Cash Collateral and Disbursement Agreement dated as of March 14, 1997, between TARC and First Union National Bank, as Trustee and Disbursement Agent (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.13 -- First Amendment to Cash Collateral and Disbursement Agreement dated as of April 3, 1997, between TARC and First Union National Bank, as Trustee and Disbursement Agent (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.14 -- Second Supplemental Indenture dated June 13, 1997 between TARC, as issuer, TransAmerican Energy Corporation, as guarantor, and First Union National Bank, as trustee (filed as an exhibit to TARC's current report on Form 8-K dated June 13, 1997, and incorporated herein by reference). 4.15 -- Loan Agreement dated June 13, 1997 between TARC and TransAmerican Energy Corporation (filed as an exhibit to TARC's current report on Form 8-K dated June 13, 1997, and incorporated herein by reference). 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. *4.20 -- First Amendment dated December 30, 1997 to Disbursement Agreement among TARC, TEC, Firstar Bank of Minnesota, N.A. and Baker & O'Brien. *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. *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. *4.23 -- Registration Rights Agreement dated December 30, 1997 between TARC and the holders of the Series A Senior Subordinated Notes. *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. *4.25 -- Third Supplemental Indenture dated January 16, 1998 between TARC, TEC and First Union National Bank. *4.26 -- Irrevocable Trust and Security Agreement dated January 16, 1998 between TARC and First Union National Bank. *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.
54 57 *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. *4.29 -- Registration Rights Agreement dated March 16, 1998 between TARC and the holders of the Series C Senior Subordinated Notes. *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. *4.31 -- Note Purchase Agreement dated December 10, 1997 between TARC and Merrill Lynch Corporate Bond Fund, Inc. -- High Income Portfolio. 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).
55 58 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). *27.1 -- Financial Data Schedule. *27.2 -- Restated Financial Data Schedule. 99.1 -- Financial Statements of TransTexas dated January 31, 1998 (filed as part of TransTexas' Form 10-K for the year ended January 31, 1998, and incorporated herein by reference).
- --------------- * Filed herewith. (b) REPORTS ON FORM 8-K TARC did not file any current reports on Form 8-K during the three months ended January 31, 1998. 56 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 30, 1998. TRANSAMERICAN REFINING CORPORATION By: /s/ JOHN R. STANLEY ------------------------------------- John R. Stanley, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on April 30, 1998.
NAME TITLE ---- ----- /s/ JOHN R. STANLEY Director, Chairman of the Board, President - ----------------------------------------------------- and Chief Executive Officer (Principal John R. Stanley Executive Officer) /s/ DONALD B. HENDERSON Director - ----------------------------------------------------- Donald B. Henderson /s/ THOMAS B. MCDADE Director - ----------------------------------------------------- Thomas B. McDade /s/ EDWIN B. DONAHUE Vice President and Secretary (Principal - ----------------------------------------------------- Financial Officer and Accounting Officer) Edwin B. Donahue
57 60 INDEX TO EXHIBITS
EXHIBITS -------- 2.1 -- Stock Transfer Agreement dated as of February 23, 1995, between TARC, TEC and TransAmerican (filed as an exhibit to TARC's and TEC's Current Report on Form 8-K dated March 23, 1995, and incorporated herein by reference). 3.1 -- Articles of Incorporation of TARC (filed as an exhibit to TARC's and TEC's Registration Statement on Form S-1 [No. 33-82200], and incorporated herein by reference). 3.2 -- By-laws of TARC (filed as an exhibit to TARC's and TEC's Registration Statement on Form S-1 [No. 33-82200], and incorporated herein by reference). 4.1 -- Indenture dated as of February 15, 1995, between TARC, First Fidelity Bank, National Association, as Trustee and TEC, with respect to the Guaranteed First Mortgage Discount Notes and the Guaranteed First Mortgage Notes (together, the "Notes"), including the forms of Notes as exhibits (filed as an exhibit to TARC's and TEC's Current Report on Form 8-K dated February 23, 1995, and incorporated herein by reference). 4.2 -- Warrant Agreement dated as of February 23, 1995, among the Company, TEC and First Fidelity Bank, National Association, as Warrant Trustee, with respect to the Common Stock Purchase Warrants including the form of Warrant as an exhibit (filed as an exhibit to TARC's and TEC's Current Report on Form 8-K dated February 23, 1995, and incorporated herein by reference). 4.3 -- Pledge Agreement dated as of February 23, 1995, from TARC to First Fidelity Bank, National Association, as Trustee (filed as an exhibit to TARC's and TEC's Current Report on Form 8-K dated February 23, 1995, and incorporated herein by reference). 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).
61
EXHIBITS -------- 4.9 -- Indenture dated as of March 14, 1997, between TARC and First Union National Bank, as Trustee, with respect to the $36 million Senior Secured Notes due 1998, including the form of Note as an exhibit (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.10 -- Pledge Agreement dated as of March 14, 1997, from TARC to First Union National Bank, as Trustee (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.11 -- Security Agreement dated as of March 14, 1997, from TARC to First Union National Bank, as Trustee (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.12 -- Cash Collateral and Disbursement Agreement dated as of March 14, 1997, between TARC and First Union National Bank, as Trustee and Disbursement Agent (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.13 -- First Amendment to Cash Collateral and Disbursement Agreement dated as of April 3, 1997, between TARC and First Union National Bank, as Trustee and Disbursement Agent (filed as an exhibit to TARC's Annual Report on Form 10-K for the year ended January 31, 1997, and incorporated herein by reference). 4.14 -- Second Supplemental Indenture dated June 13, 1997 between TARC, as issuer, TransAmerican Energy Corporation, as guarantor, and First Union National Bank, as trustee (filed as an exhibit to TARC's current report on Form 8-K dated June 13, 1997, and incorporated herein by reference). 4.15 -- Loan Agreement dated June 13, 1997 between TARC and TransAmerican Energy Corporation (filed as an exhibit to TARC's current report on Form 8-K dated June 13, 1997, and incorporated herein by reference). 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. *4.20 -- First Amendment dated December 30, 1997 to Disbursement Agreement among TARC, TEC, Firstar Bank of Minnesota, N.A. and Baker & O'Brien. *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.
62
EXHIBITS -------- *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. *4.23 -- Registration Rights Agreement dated December 30, 1997 between TARC and the holders of the Series A Senior Subordinated Notes. *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. *4.25 -- Third Supplemental Indenture dated January 16, 1998 between TARC, TEC and First Union National Bank. *4.26 -- Irrevocable Trust and Security Agreement dated January 16, 1998 between TARC and First Union National Bank. *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. *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. *4.29 -- Registration Rights Agreement dated March 16, 1998 between TARC and the holders of the Series C Senior Subordinated Notes. *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. *4.31 -- Note Purchase Agreement dated December 10, 1997 between TARC and Merrill Lynch Corporate Bond Fund, Inc. -- High Income Portfolio. 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).
63
EXHIBITS -------- 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). 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). *27.1 -- Financial Data Schedule. *27.2 -- Restated Financial Data Schedule. 99.1 -- Financial Statements of TransTexas dated January 31, 1998 (filed as part of TransTexas' Form 10-K for the year ended January 31, 1998, and incorporated herein by reference).
- --------------- * Filed herewith. EX-4.19 2 1ST AMEND. TO LOAN AGREEMENT (TEC) 1 EXHIBIT 4.19 - -------------------------------------------------------------------------------- TRANSAMERICAN REFINING CORPORATION ------------------------------ FIRST AMENDMENT TO LOAN AGREEMENT Dated as of December 30, 1997 ------------------------------ - -------------------------------------------------------------------------------- 2 This First Amendment to Loan Agreement (this "First Amendment") is made as of December 30, 1997, by and between TransAmerican Energy Corporation, a Delaware corporation ("TEC"), and TransAmerican Refining Corporation, a Texas corporation ("TARC"). WHEREAS, TEC and Firstar Bank of Minnesota, N.A., as Trustee, have entered into an Indenture dated as of June 13, 1997 (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 (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 an amendment to the TARC Intercompany Loan Agreement as hereinafter set forth (the "Proposed Amendment"); 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 Amendment 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 First Amendment hereby agree as follows: ARTICLE I AMENDMENT TO THE TARC INTERCOMPANY LOAN AGREEMENT Section 1.01. Amendment to Section 1.1. The following definition in Section 1.1 of the TARC Intercompany Loan Agreement is hereby amended to read in its entirety 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 from time to time. ARTICLE II MISCELLANEOUS Section 2.01. Ratification and Confirmation. As amended and modified by this First 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. 3 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. 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, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date of first written above. TRANSAMERICAN REFINING CORPORATION By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- TRANSAMERICAN ENERGY CORPORATION By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 2 EX-4.20 3 1ST AMEND. TO DISBURSEMENT AGREEMENT 1 EXHIBIT 4.20 - -------------------------------------------------------------------------------- TRANSAMERICAN REFINING CORPORATION ------------------------ FIRST AMENDMENT TO DISBURSEMENT AGREEMENT Dated as of December 30, 1997 -------------------------- - -------------------------------------------------------------------------------- 2 This First Amendment to Disbursement Agreement (this "First Amendment") is made as of December 30, 1997, by and between TransAmerican Energy Corporation, a Delaware corporation ("TEC"), TransAmerican Refining Corporation, a Texas corporation ("TARC"), Firstar Bank of Minnesota, N.A. (the "Trustee"), Firstar Bank of Minnesota, N.A., as security intermediary and disbursement agent (the "Disbursement Agent"), and Baker & O'Brien, Inc. WHEREAS, TEC and the Trustee have entered into an Indenture dated as of June 13, 1997 (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 (the "TARC Intercompany Loan Agreement"), pursuant to which TEC agreed to lend to TARC an aggregate of $675,648,920 out of the proceeds of the issuance of the Notes; and WHEREAS, in connection with the TARC Intercompany Loan Agreement, TEC, TARC, the Trustee, the Disbursement Agent, and Baker & O'Brien, Inc., as construction supervisor (the "Construction Supervisor"), have entered into a Disbursement Agreement dated as of June 13, 1997 (the "TARC Disbursement Agreement"); and WHEREAS, TEC, TARC, the Trustee, the Disbursement Agent and the Construction Supervisor have agreed to certain amendments to the TARC Disbursement 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 Disbursement Agreement; 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 AMENDMENTS TO TARC DISBURSEMENT AGREEMENT Section 1.01. Amended Definitions. The following definitions in Section 1.1 of the TARC Disbursement Agreement are hereby amended to read in their respective entireties as follows: "Accounts" means the TARC Disbursement Account, the TEC Disbursement Account, the Contingency Reserve Account, the Feedstock Reserve Account, the TARC Feedstock Reserve Account, the Operating Reserve Account and the Interest Accumulation Account. "Reserve Accounts" means the Contingency Reserve Account, the Feedstock Reserve Account, the Operating Reserve Account and the TARC Feedstock Reserve Account. 3 "TARC Accounts" means the TARC Disbursement Account, the TARC Feedstock Reserve Account and the Interest Accumulation Account. "TARC Feedstock Reserve Account" has the meaning given to such term in Section 4.2(c). Section 1.02. Section 4.1 of the TARC Disbursement Agreement. Section 4.1(c) of the TARC Disbursement Agreement is hereby amended to read in its entirety as follows: (c) TEC shall maintain with the Disbursement Agent a segregated subaccount of the TEC Disbursement Account (the "Feedstock Reserve Account") in the name of TEC but indicating the lien of the Trustee. Funds shall be released from the Feedstock Reserve Account only in accordance with the provisions of Article V. Upon the establishment of the TARC Feedstock Reserve Account, this Feedstock Reserve Account shall be closed and any funds therein shall be disbursed as provided in Section 5.3(b). Section 1.03. Section 4.2 of the TARC Disbursement Agreement. Section 4.2 of the TARC Disbursement Agreement is hereby amended by adding the following clause after clause (b): (c) Upon the issuance by TARC of subordinated notes with proceeds to TARC of at least $100 million, TARC shall open and thereafter maintain with the Disbursement Agent a separate custodial account (the "TARC Feedstock Reserve Account") under the sole dominion and control of the Trustee, in the name of TARC but indicating the lien of the Trustee, as assignee. Funds shall be released from the TARC Feedstock Reserve Account only in accordance with the provisions of Article V. Section 1.04. Section 4.3 of the TARC Disbursement Agreement. Section 4.3 of the TARC Disbursement Agreement is hereby amended by adding the following clause after clause (d): (e) With respect to any deposits into the TARC Disbursement Account on or after December 29, 1997, (i) the first $69 million shall remain in the TARC Disbursement Account until disbursed, without reservation of such funds to any other account and (ii) any additional funds deposited (up to $50 million) shall be reserved to the TARC Feedstock Reserve Account. Section 1.05. Section 4.4 of the TARC Disbursement Agreement. (a) Section 4.4(a) of the TARC Disbursement Agreement is hereby amended to read in its entirety as follows: (a) Initially, $25,500,000 of the amount deposited in the TEC Disbursement Account shall be reserved in the Operating Reserve Account. Upon any additional deposits to the TEC Disbursement Account pursuant to the provisions of Section 4.3(a), the amount of such additional deposits shall be reserved in the Contingency Reserve Account until the aggregate amount reserved therein equals the Minimum Contingency Reserve Amount. 2 4 (b) Section 4.4 of the TARC Disbursement Agreement is hereby further amended by adding the following clause after clause (b): (c) Upon the creation of the TARC Feedstock Reserve Account pursuant to Section 4.2(c), $10,176,272 of the amounts then on deposit in the TEC Disbursement Account shall be disbursed and immediately deposited into the Contingency Reserve Account. Section 1.06. Section 5.3 of the TARC Disbursement Agreement. (a) Section 5.3(b) of the TARC Disbursement Agreement is hereby amended to read in its entirety as follows: (b) (i) Upon the creation of the TARC Feedstock Reserve Account pursuant to Section 4.2(c) above, all funds in the Feedstock Reserve Account, if any, shall be disbursed and immediately deposited into the TARC Disbursement Account, and (ii) disbursements of funds specified in a Disbursement Certificate for the purchase of feedstock to be used in the start up and subsequent operation of the Delayed Coking Unit and/or Phase I ("Feedstock Disbursements") shall be made out of the Feedstock Reserve Account or the TARC Feedstock Reserve Account, as the case may be; provided, that the Construction Supervisor shall have previously delivered either a Coking Unit Completion Notice or a Phase I Completion Notice to the Disbursement Agent. (b) Section 5.3(c) of the TARC Disbursement Agreement is hereby amended to read in its entirety as follows: (c) Notwithstanding any provision hereof to the contrary (i) on the first Business Day after the initial deposit of funds into the TARC Disbursement Account, the Disbursement Agent shall make a disbursement (the "Initial Disbursement") to TARC in the amount of $32,000,000 from the TARC Disbursement Account; provided, that the Disbursement Agent has received a certificate of a duly authorized officer of TARC certifying that at least $25,000,000 of the Initial Disbursement shall be applied towards the construction of the Project and that the remainder of the Initial Disbursement shall be applied towards the payment of outstanding accounts payable and (ii) on the first Business Day subsequent to a deposit into the TARC Disbursement Account in excess of $8,000,000 (which deposit is after December 29, 1997), the Disbursement Agent shall make a disbursement to TARC in the amount of $8,000,000 from the TARC Disbursement Account; provided, that the Disbursement Agent has received a certificate of a duly authorized officer of TARC certifying that all of such disbursement shall be applied towards the construction of the Project. 3 5 (c) Section 5.3 of the TARC Disbursement Agreement is hereby further amended by adding the following clause after clause (h): (i) Notwithstanding any provision hereof to the contrary, on the first Business Day after delivery of a Phase I Completion Notice to the Disbursement Agent and TEC, the Disbursement Agent shall liquidate all investments in the Operating Reserve Account and release all amounts remaining on deposit in the Operating Reserve Account to TARC in accordance with written instructions provided by TARC. ARTICLE II MISCELLANEOUS Section 2.01. Ratification and Confirmation. As amended and modified by this First Amendment, the terms and provisions of the TARC Disbursement Agreement are hereby ratified and confirmed and shall continue in full force and effect. Section 2.02. Reference to TARC Disbursement Agreement. The TARC Disbursement Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms of the TARC Disbursement Agreement, are hereby amended so that any reference therein to the TARC Disbursement Agreement shall mean a reference to the TARC Disbursement 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. 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, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Section 2.06. Certificate and Opinion as to Conditions Precedent. Simultaneously with and as a condition to the execution of this First Amendment, TEC 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. 4 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date of first written above. TRANSAMERICAN REFINING CORPORATION By: --------------------------------- Name: ------------------------------ Title: ------------------------------ TRANSAMERICAN ENERGY CORPORATION By: --------------------------------- Name: ------------------------------ Title: ------------------------------ FIRSTAR BANK OF MINNESOTA, N.A., as Disbursement Agent By: --------------------------------- Name: ------------------------------ Title: ------------------------------ FIRSTAR BANK OF MINNESOTA, N.A., as Trustee By: --------------------------------- Name: ------------------------------ Title: ------------------------------ BAKER & O'BRIEN, INC., as Construction Supervisor By: --------------------------------- Name: ------------------------------ Title: ------------------------------ 5 EX-4.21 4 INDENTURE - SERIES A SENIOR SUB. NOTES 1 EXHIBIT 4.21 ================================================================================ $200,000,000 16% Senior Subordinated Notes due 2003 INDENTURE between TRANSAMERICAN REFINING CORPORATION, as Issuer and First Union National Bank as Trustee Dated as of December 30, 1997 ================================================================================ 2 CROSS-REFERENCE TABLE
TIA INDENTURE SECTION SECTION - ------- --------- 310(a)(1)............................................................................... 7.10 (a)(2)............................................................................ 7.10 (a)(3)............................................................................ N.A. (a)(4)............................................................................ N.A. (a)(5)............................................................................ 7.10 (b) ............................................................................. 7.08; 7.10 (c) ............................................................................. N.A. 311(a) ............................................................................. 7.11 (b) ............................................................................. 7.11 (c) ............................................................................. N.A. 312(a) ............................................................................. 2.05 (b) ............................................................................. 13.03 (c) ............................................................................. 13.03 313(a) ............................................................................. 7.06 (b)(1)............................................................................ 7.06 (b)(2)............................................................................ 7.06 (c) ............................................................................. 7.06; 13.02 (d) ............................................................................. 7.06 314(a) ............................................................................. 4.08; 13.02 (b) ............................................................................. 12.03(b) (c)(1)............................................................................ 2.02; 7.02; 13.04 (c)(2)............................................................................ 7.02; 13.04 (c)(3)............................................................................ N.A. (d) ............................................................................ 12.03(b); 12.04(b) (e) ............................................................................. 13.05 (f) ............................................................................. N.A. 315(a) ............................................................................. 7.01(b) (b) ............................................................................. 7.05; 13.02 (c) ............................................................................. 7.01(a) (d) ............................................................................. 6.11; 7.01(c) (e) ............................................................................. 6.13 316(a)(last sentence)................................................................... 2.09 (a)(1)(A)......................................................................... 6.11 (a)(1)(B)......................................................................... 6.12 (a)(2)............................................................................ N.A. (b) ............................................................................. 6.12; 6.08 (c) ............................................................................. 10.05 317(a)(1)............................................................................... 6.03 (a)(2)............................................................................ 6.04 (b) ............................................................................. 2.04 318(a) ............................................................................. 13.01
- -------------- N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. 3 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE......................................................1 Section 1.1 Definitions...................................................................1 Section 1.2 Incorporation by Reference of TIA............................................22 Section 1.3 Rules of Construction........................................................23 ARTICLE II THE NOTES......................................................................................23 Section 2.1 Form and Dating..............................................................23 Section 2.2 Execution and Authentication.................................................24 Section 2.3 Registrar and Paying Agent...................................................25 Section 2.4 Paying Agent to Hold Assets in Trust.........................................25 Section 2.5 Noteholder Lists.............................................................25 Section 2.6 Transfer and Exchange........................................................25 Section 2.7 Replacement Notes............................................................29 Section 2.8 Outstanding Notes............................................................29 Section 2.9 Treasury Notes...............................................................29 Section 2.10 Temporary Notes..............................................................29 Section 2.11 Cancellation.................................................................30 Section 2.12 Defaulted Interest...........................................................30 Section 2.13 Computation of Interest......................................................31 Section 2.14 Legends......................................................................31 Section 2.15 Separation of Notes and Warrants.............................................32 ARTICLE III REDEMPTION.....................................................................................32 Section 3.1 Right of Redemption..........................................................32 Section 3.2 Notices to Trustee...........................................................32 Section 3.3 Selection of Notes to Be Redeemed............................................32 Section 3.4 Notice of Redemption.........................................................33 Section 3.5 Effect of Notice of Redemption...............................................34 Section 3.6 Deposit of Redemption Price..................................................34 Section 3.7 Notes Redeemed in Part.......................................................34 ARTICLE IV COVENANTS......................................................................................35 Section 4.1 Payment of Notes.............................................................35 Section 4.2 Maintenance of Office or Agency..............................................35 Section 4.3 Limitation on Restricted Payments............................................35 Section 4.4 Corporate Existence..........................................................36 Section 4.5 Payment of Taxes and Other Claims............................................36 Section 4.6 Maintenance of Properties and Insurance......................................36 Section 4.7 Compliance Certificate; Notice of Default....................................37 Section 4.8 SEC Reports..................................................................37 Section 4.9 Limitation on Status as Investment Company or Public Utility Company....................................................38 Section 4.10 Limitation on Transactions with Related Persons..............................38
i 4 Section 4.11 Limitation on Incurrences of Additional Debt and Issuances of Disqualified Capital Stock..................................39 Section 4.12 Limitations on Restricting Subsidiary Dividends..............................41 Section 4.13 Liens........................................................................41 Section 4.14 Limitation on Asset Sales....................................................42 Section 4.15 Waiver of Stay, Extension or Usury Laws......................................44 Section 4.16 Guarantee by Subsidiaries....................................................45 Section 4.17 Intentionally Omitted........................................................46 Section 4.18 Limitations on Line of Business..............................................46 Section 4.19 Separate Existence and Formalities...........................................46 Section 4.20 Accounts Receivable Subsidiary...............................................46 Section 4.21 Limitation on Ranking of Future Debt.........................................47 Section 4.22 Maintenance of Interest Reserve Account......................................47 Section 4.23 Restriction on Sale and Issuance of Subsidiary Stock.........................49 Section 4.24 [Intentionally Omitted]......................................................49 ARTICLE V SUCCESSOR CORPORATION..........................................................................49 Section 5.1 When the Company May Merge, Etc..............................................49 Section 5.2 Successor Corporation Substituted............................................50 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES.................................................................51 Section 6.1 Events of Default............................................................51 Section 6.2 Acceleration of Maturity Date; Rescission and Annulment......................52 Section 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee..............53 Section 6.4 Trustee May File Proofs of Claim.............................................54 Section 6.5 Trustee May Enforce Claims Without Possession of Notes.......................54 Section 6.6 Priorities...................................................................55 Section 6.7 Limitation on Suits..........................................................55 Section 6.8 Unconditional Right of Holders to Receive Principal, Premium and Interest.........................................................55 Section 6.9 Rights and Remedies Cumulative...............................................56 Section 6.10 Delay or Omission Not Waiver.................................................56 Section 6.11 Control by Holders...........................................................56 Section 6.12 Waiver of Past Default.......................................................56 Section 6.13 Undertaking for Costs........................................................56 Section 6.14 Restoration of Rights and Remedies...........................................57 ARTICLE VII TRUSTEE........................................................................................57 Section 7.1 Duties of Trustee............................................................57 Section 7.2 Rights of Trustee............................................................58 Section 7.3 Individual Rights of Trustee.................................................59 Section 7.4 Trustee's Disclaimer.........................................................59 Section 7.5 Notice of Default............................................................59 Section 7.6 Reports by Trustee to Holders................................................59 Section 7.7 Compensation and Indemnity...................................................59 Section 7.8 Replacement of Trustee.......................................................60 Section 7.9 Successor Trustee by Merger, Etc.............................................61 Section 7.10 Eligibility; Disqualification................................................61
ii 5 Section 7.11 Preferential Collection of Claims against Company............................61 Section 7.12 No Bond......................................................................61 Section 7.13 Condition to Action..........................................................61 Section 7.14 Investment...................................................................61 ARTICLE VIII SATISFACTION AND DISCHARGE.....................................................................61 Section 8.1 Satisfaction, Discharge of the Indenture and Defeasance of the Notes......................................................61 Section 8.2 Termination of Obligations Upon Cancellation of the Notes....................63 Section 8.3 Survival of Certain Obligations..............................................63 Section 8.4 Acknowledgment of Discharge by Trustee.......................................63 Section 8.5 Application of Trust Assets..................................................63 Section 8.6 Repayment to the Company.....................................................63 Section 8.7 Reinstatement................................................................64 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................................64 Section 9.1 Supplemental Indentures Without Consent of Holders...........................64 Section 9.2 Amendments, Supplemental Indentures and Waivers with Consent of Holders......................................................64 Section 9.3 Compliance with TIA..........................................................66 Section 9.4 Revocation and Effect of Consents............................................66 Section 9.5 Notation on or Exchange of Notes.............................................66 Section 9.6 Trustee to Sign Amendments, Etc..............................................66 ARTICLE X MEETINGS OF NOTEHOLDERS........................................................................67 Section 10.1 Purposes for Which Meetings May Be Called....................................67 Section 10.2 Manner of Calling Meetings...................................................67 Section 10.3 Call of Meetings by Company or Holders.......................................67 Section 10.4 Who May Attend and Vote at Meetings..........................................68 Section 10.5 Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment...................................68 Section 10.6 Voting at the Meeting and Record to Be Kept..................................68 Section 10.7 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting................................69 ARTICLE XI RIGHT TO REQUIRE REPURCHASE....................................................................69 Section 11.1 Repurchase of Notes at Option of the Holder Upon Change of Control.......................................................69 ARTICLE XII SUBORDINATION..................................................................................71 Section 12.1 Notes Subordinated to Senior Indebtedness....................................71 Section 12.2 No Payment on Securities in Certain Circumstances............................71 Section 12.3 Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization...........................72 Section 12.4 Securityholders to Be Subrogated to Rights of Holders of Senior Debt...............................................................72 Section 12.5 Obligations of the Company Unconditional.....................................73 Section 12.6 Trustee Entitled to Assume Payments Not Prohibited
iii 6 in Absence of Notice.........................................................73 Section 12.7 Application by Trustee of Assets Deposited with It...........................73 Section 12.8 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt.....................................74 Section 12.9 Holders of Notes Authorize Trustee to Effectuate Subordination of Securities..................................................74 Section 12.10 Right of Trustee to Hold Senior Debt.........................................74 Section 12.11 Article XII Not to Prevent Events of Default.................................75 Section 12.12 No Fiduciary Duty of Trustee to Holders of Senior Debt.......................75 ARTICLE XIII MISCELLANEOUS..................................................................................75 Section 13.1 TIA Controls.................................................................75 Section 13.2 Notices......................................................................75 Section 13.3 Communications by Holders with Other Holders.................................76 Section 13.4 Certificate and Opinion as to Conditions Precedent...........................76 Section 13.5 Statements Required in Certificate or Opinion................................76 Section 13.6 Rules by Trustee, Paying Agent, Registrar....................................76 Section 13.7 Legal Holidays...............................................................77 Section 13.8 Governing Law................................................................77 Section 13.9 No Adverse Interpretation of Other Agreements................................77 Section 13.10 No Recourse against Others...................................................77 Section 13.11 Successors...................................................................77 Section 13.12 Duplicate Originals..........................................................77 Section 13.13 Severability.................................................................77 Section 13.14 Table of Contents, Headings, Etc.............................................78 SIGNATURES.......................................................................................................79
EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Unit Exhibit C - Certificate of Transferor Note: This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. iv 7 INDENTURE, dated as of December 30, 1997, among TRANSAMERICAN REFINING CORPORATION, a Texas corporation (the "Company"), and FIRST UNION NATIONAL BANK, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 16% Senior Subordinated Notes due 2003: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions. "Accounts Receivable Subsidiary" means a subsidiary of TEC designated as an Accounts Receivable Subsidiary for the purpose of financing the accounts receivable of the Company. "Accounts Receivable Subsidiary Notes" means the notes to be issued by the Accounts Receivable Subsidiary for the purchase of accounts receivable. "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. "Adjusted Net Assets" of a Guarantor means the lesser of (a) the amount by which the Guarantor's property, at a fair valuation, exceeds the sum of its debts (including unliquidated or contingent debts), (b) the amount by which the present fair salable value of the Guarantor's assets exceeds the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured, (c) the amount by which the Guarantor's assets exceed the maximum amount that would constitute unreasonably small capital for its business or (d) the amount by which the Guarantor's assets exceed the amount that such Guarantor should reasonably retain to pay its debts (including unliquidated or contingent debts) as they mature. "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 5% or more of the voting power of the voting 8 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). "Agent" means any Registrar, Paying Agent or co-Registrar. "Alkylation Unit" means the alkylation unit being constructed as part of the Capital Improvement Program. "Appraisal" means, when used with respect to the valuation of any property, an appraisal prepared by an Appraiser as to the Appraised Value of such property. "Appraised Value" means, with respect to any property at any date, the then current fair market value of such property as set forth in the most recent Appraisal. "Appraiser" means an independent appraiser of national recognition qualified to appraise the property appraised. "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). "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee of the Board of Directors of such Person authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "Business Day" means a day that is not a Legal Holiday. "Capital Expenditures" of a Person means expenditures (whether paid in cash or accrued as a liability) by such Person or any of its Subsidiaries that, in conformity with GAAP, are or would be included in "capital expenditures," "additions to property, plant, or equipment" or comparable items in the consolidated financial statements of such Person consistent with prior accounting practices. 2 9 "Capital Improvement Program" means the expansion and improvement program at the Company as described in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program" and including both Phase I and Phase II. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participations, or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into corporate stock), warrants or options to purchase any of the foregoing, including without limitation, each class of common stock and preferred stock of such Person, if such Person is a corporation, and each general or limited partnership interest or other equity interest of such Person, if such Person is a partnership. "Capitalized Lease Obligation" means obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Debt represented by such obligations shall be the capitalized amount of such obligations, as determined in accordance with GAAP. "cash" means U.S. Legal Tender. "Cash Equivalents" means (a) United States dollars, (b) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than 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 $10,000,000 in the aggregate at any one time, and (i) demand or fully insured time deposits used in the ordinary course of business with commercial banks insured by the Federal Deposit Insurance Corporation. "CATOFIN(R) Unit" means certain real property currently owned by the Company as more specifically defined in the security documents relating to the TEC Notes, together with all personal property of the Company now or hereinafter located on such real property but only to the extent that such property is part of a refining unit designed to produce propane and butane mono-olefins using the CATOFIN(R) process. "Change of Control" means (i) the liquidation or dissolution of, or the adoption of a plan of liquidation by, the Company, or (ii) any transaction, event or circumstance pursuant to which any "person" or "group" (as such terms are used for purposes of Section 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than John R. Stanley (or his heirs, his estate, or any trust in which he or his immediate family members have, directly or indirectly, a beneficial interest in excess of 50%) and his Subsidiaries or the TEC Indenture Trustee, is or becomes the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable), directly or indirectly, of more than 50%, on a 3 10 fully diluted basis, of the total voting power of the Company's then outstanding Voting Stock unless, at the time of the occurrence of an event specified in clauses (i) or (ii), the Notes have a current rating issued by a Rating Agency; provided, however, that if, at any time within the period commencing on the date that is immediately prior to the date of the first public announcement of such event and ending on, but not including, the date that is 90 days after occurrence of such event (which period shall be deemed to be extended so long as prior to the end of such 90-days period and continuing thereafter the rating of the Notes is under publicly announced consideration for possible downgrade by either Rating Agency) either (a) the Notes are downgraded by either Rating Agency to a rating at least one gradation (including a change within rating categories, e.g., a decline in rating from BB+ to BB, or from B to B--) below that which existed on the date immediately prior to the date of the first public announcement of such an event, or (b) either Rating Agency withdraws its rating of the Notes, then, in either case, such event shall be a "Change of Control." "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" means the Company's common stock, $0.01 par value. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" of any Person for any period, unless otherwise defined herein, means (a) the Consolidated Net Income of such Person for such period, plus (b) the sum, without duplication (and only to the extent such amounts are deducted from net revenues in determining such Consolidated Net Income), of (i) the provision for income taxes for such period for such Person and its consolidated Subsidiaries, (ii) depreciation, depletion, and amortization of such Person and its consolidated Subsidiaries for such period and (iii) Consolidated Fixed Charges of such Person for such period, determined, in each case, on a consolidated basis for such Person and its consolidated Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" on any date (the "Transaction Date") means, with respect to any Person, the ratio, on a pro forma basis, of (i) the aggregate amount of Consolidated EBITDA of such Person (attributable to continuing operations and businesses and exclusive of the amounts attributable to operations and businesses discontinued or disposed of, on a pro forma basis as if such operations and businesses were discontinued or disposed of on the first day of the Reference Period) for the Reference Period to (ii) the aggregate Consolidated Fixed Charges 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 4 11 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 5 12 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 deduction therefrom: (i) total liabilities and total capital items as of such date except the following: items constituting Debt, paid-in-capital and retained earnings, provisions for deferred income taxes and deferred gains, and reserves which are not reserves for any contingencies not allocated to any particular purpose; (ii) good will, trade names, trademarks, patents, unamortized debt discount and expense, and other intangible assets; and (iii) all Investments other than Permitted Investments. "Construction Supervisor" means Baker & O'Brien, Inc., as construction supervisor of the Capital Improvement Program or any successor construction supervisor appointed pursuant to the Disbursement Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Debt" means, with respect to any Person, without duplication (i) all liabilities, contingent or otherwise, of such Person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, or similar instruments or letters of credit, (c) representing the deferred and unpaid balance of the purchase price of any property acquired by such Person or services received by such Person, other than long-term service contracts or supply contracts which require minimum periodic payments and other than any such balance that represents an account payable or other monetary obligation to a trade creditor created, incurred, assumed or guaranteed by such Person in the ordinary course of business of such Person in connection with obtaining goods, materials or services due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the Incurrence thereof, which account is not overdue by more than 150 days, unless such account payable is being contested in good faith or has been extended, (d) evidenced by bankers' acceptances or similar instruments issued or accepted by banks or Swap Obligations, (e) for the payment of money relating to a Capitalized Lease Obligation or (f) the Attributable Debt associated with any Sale and Leaseback Transaction; (ii) reimbursement obligations of such Person with respect to letters of credit; (iii) all liabilities of others of the kind described in the preceding clause (i) or (ii) that such Person has guaranteed or that is otherwise its legal liability (to the extent of such guaranty or other legal liability) other than for endorsements, with recourse, of negotiable instruments in the ordinary course of business; (iv) all obligations secured by a Lien (other than Permitted Liens, except to the extent the obligations secured by such Permitted Liens are otherwise included in clause (i), (ii) or (iii) of this definition and are obligations of such Person) to which the property or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such Person are subject, regardless of whether the obligations secured thereby shall have been assumed by or shall otherwise be such Person's legal liability (but, if such obligations are not assumed by such Person or are not otherwise such Person's legal liability, the amount of such Debt shall be deemed to be limited to the fair market value of such property or assets determined as of the end of the preceding fiscal quarter); and (v) any and all deferrals, renewals, extensions, refinancings, and refundings (whether direct or indirect) of, or amendments, modifications, or supplements to, any liability of the kind described in any of the preceding clauses (i) through (iv) regardless of whether between or among the same parties. 6 13 "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. "Definitive Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, and that do not include the information called for by footnotes 1 and 2 thereof. "Delayed Coking Unit" means the delayed coking unit being constructed as part of the Capital Improvement Program. "Depository" means the Person specified in Section 2.3 hereof as the Depository with respect to the Notes issuable in global form, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "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 or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such Person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to June 30, 2003. "DTC" means The Depository Trust Company. "Eligible Institution" means a commercial banking institution that has combined capital and surplus of not less than $500,000,000 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. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "Event of Default" shall have the meaning specified in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. 7 14 "Exchange Offer" means the offer that may be made by the Company pursuant to the Registration Rights Agreement to exchange Series B Notes for Series A Notes. "Expense Reimbursement Agreement" means an express 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 the Offering Circular. "Gas Purchase Agreement" means the Interruptible Gas Sales Terms and Conditions between the Company and TransTexas, as in effect on the Issue Date and as amended from time to time, provided that any such amendment is not adverse to the holders of the Notes in any material respect. "Global Note" means a Note in the form of the Note attached hereto as Exhibit A and that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2. "Guarantor" means each of the Company's future Subsidiaries that becomes a guarantor of the Notes and the Company's obligations under this Indenture in compliance with the provisions of this Indenture. "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. "HDS Unit" means the hydrodesulfurization unit being constructed as part of the Capital Improvement Program. "Holder" means the Person in whose name a Note is registered on the Registrar's books. "Hydrocarbons" means oil, natural gas, condensate, and natural gas liquids. "Incur" shall have the meaning specified in Section 4.11. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "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, TARC, 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. 8 15 "Intercompany Loan Redemption" means the redemption by the Company of all or a portion of the principal amount then outstanding under the TARC Intercompany Loan together with all accrued and unpaid interest, if any, to and including the redemption date. "Interest Payment Date" means the stated due date of an installment of interest on the Notes. "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 the Company 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. "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 if 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 this 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. "Legal Holiday" shall have the meaning provided in Section 13.7. "Lien" means any mortgage, lien, pledge, charge, security interest, or other encumbrance of any kind, 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). 9 16 "Liquidated Damages" has the meaning provided in the Registration Rights Agreement relating to the Notes. "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%. "Maturity Date," when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity, Change of Control Payment Date, Purchase Date or by declaration of acceleration, call for redemption or otherwise. "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. "Naphtha Pretreater" means the naphtha pretreater being constructed as part of the Capital Improvement Program. "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 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 Proceeds" means (a) in the case of any sale by a Person of Qualified Capital Stock, the aggregate net cash proceeds received by such Person from the sale of Qualified Capital Stock (other than to a Subsidiary) after payment of reasonable out-of-pocket expenses, commissions and discounts incurred in connection therewith, and (b) in the case of any exchange, exercise, conversion or surrender of any outstanding securities or Debt of such Person for or into shares of Qualified Capital Stock of such Person, 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, insofar as such payments or expenses are incident to such exchange, exercise, conversion, or surrender). 10 17 "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. "Non-Recourse Debt" of any Accounts Receivable Subsidiary means Debt of such Accounts Receivable Subsidiary that (a) is not guaranteed by the Company or any of its Subsidiaries (other than a guaranty by the Company limited in recourse to the stock of the Accounts Receivable Subsidiary), (b) is not recourse to and does not obligate the Company or any of its Subsidiaries (other than as described in clause (a) above), and (c) does not subject any assets of the Company (other than Capital Stock of such Accounts Receivable Subsidiary) or any of its Subsidiaries, to the payment thereof. "Noteholder" means the Person in whose name a Note is registered on the Registrar's book. "Note Redemption" means a redemption of Notes by the Company pursuant to the redemption provisions of this Indenture. "Note Repurchase" means a purchase of Notes by the Company, other than pursuant to a Note Redemption or a Change of Control 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 hereof, 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 agreement relating to the Notes. "Offer Price" shall have the meaning specified in Section 4.14. "Offer to Purchase" means any offer made by the Company to Holders of the Securities required by Section 4.14." "Offering Circular" means the offering circular dated as of December 23, 1997 pursuant to which the Notes were offered. 11 18 "Office Leases" means the existing leases of office space at 1300 North Sam Houston Parkway East, Houston, Texas 77032-2949. "Officer" means, with respect to the Company, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of the Company. "Officers' Certificate" means, with respect to the Company, a certificate signed by two Officers or by an Officer and an Assistant Secretary of the Company and otherwise complying with the requirements of Sections 13.4 and 13.5. "Old TARC Warrants" means the Common Stock Purchase Warrants of the Company issued on February 23, 1995. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the counsel may be outside counsel to the Company. "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. "Paying Agent" shall have the meaning specified in Section 2.3. "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 the Company or its wholly owned Subsidiaries in wholly owned Subsidiaries of the Company that are engaged in a Related Business; (iv) Swap Obligations; (v) the receipt of Capital Stock in lieu of cash in connection with the settlement of litigation; (vi) advances to officers and employees in connection with the performance of their duties in the ordinary course of business in an amount not to exceed $3 million in the aggregate outstanding at any time; (vii) margin deposits in connection with Permitted Hedging Transactions; (viii) an Investment in one or more Unrestricted Subsidiaries of 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 Notes by TARC in an Accounts Receivable Subsidiary in amounts not to exceed the greater of $20 million or 20% of the TARC Borrowing Base at any one time (xi) Investments by the 12 19 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 4.111; (xiv) deposits permitted by of 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 and (xvii) money market mutual or similar funds having assets in excess of $100,000,000. "Permitted Liens" means (a) Liens imposed by governmental authorities for taxes, assessments, or other charges not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Company or any of its Subsidiaries in accordance with GAAP; (b) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairmen, mineral interest owners, or other like Liens arising by operation of law in the ordinary course of business provided that (i) the underlying obligations are not overdue for a period of more than 60 days, or (ii) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company or any of its Subsidiaries in accordance with GAAP; (c) deposits of cash or Cash Equivalents to secure (i) the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety bonds, performance bonds, and other obligations of a like nature incurred in the ordinary course of business (or to secure reimbursement obligations or letters of credit issued to secure such performance or other obligations) in an aggregate amount outstanding at any one time not in excess of $5 million or (ii) appeal or supersedeas bonds (or to secure reimbursement obligations or letters of credit in support of such bonds); (d) easements, servitudes, rights-of-way, zoning, similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business which, in the aggregate, are not material in amount and which do not, in any case, materially detract from the value of the property subject thereto (as such property is used by any of the TARC Entities) or materially interfere with the ordinary conduct of the business of any of the TARC Entities including without limitation, any easement or servitude granted in connection with the financing of the Storage Assets; (e) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in an Event of Default with respect thereto; (f) Liens securing Debt or other obligations not in excess of $3 million; (g) pledges or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance, other types of social security legislation, property insurance and liability insurance; (h) Liens on Equipment, Receivables and Inventory; (i) Liens on the assets of any entity existing at the time such assets are acquired by any of the TARC Entities, whether by merger, consolidation, purchase of assets or otherwise so long as such Liens (i) are not created, incurred or assumed in contemplation of such assets being acquired by any of the TARC Entities and (ii) do not extend to any other assets of any of the TARC Entities; (j) Liens (including extensions and renewals thereof) on real or personal property, acquired after the Issue Date ("New Property"); provided, however, that (i) such Lien is created solely for the purpose of securing Debt Incurred to finance the cost (including the cost of improvement or construction) of the item of New Property subject thereto and such Lien is created at the time of or within six months after the later of the acquisition, the completion of construction, or the commencement of full operation of such New Property, (ii) the principal amount of the Debt secured by such Lien does 13 20 not exceed 100% of such cost plus reasonable financing fees and other associated reasonable out-of-pocket expenses and (iii) any such Lien shall not extend to or cover any property or assets other than such item of New Property and any improvements on such New Property; (k) leases or subleases granted to others that do not materially interfere with the ordinary course of business of any of the TARC Entities, taken as a whole; (l) Liens on the assets of one of the TARC Entities in favor of another TARC Entity; (m) Liens securing reimbursement obligations with respect to letters of credit that encumber documents relating to such letters of credit and the products and proceeds thereof; provided, that, such reimbursement obligations are not matured for a period of over 60 days; (n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (o) Liens encumbering customary initial deposits and margin deposits securing Swap Obligations or Permitted Hedging Transactions; (p) Liens on cash deposits to secure reimbursement obligations with respect to letters of credit after the Delayed Coking Unit is completed; (q) Liens that secure Unrestricted Non-Recourse Debt; provided, however, that at the time of incurrence the aggregate fair market value of the assets securing such Lien (exclusive of the stock of the applicable Unrestricted Subsidiary) shall not exceed the amount of allowed Unrestricted Non-Recourse Debt of the Company; (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; and (v) Liens on any property of the Company (or any agreement to grant such Liens) securing the Notes. "Person" means any corporation, individual, joint stock company, joint venture, partnership, unincorporated association, governmental regulatory entity, country, state, or political subdivision thereof, trust, municipality, or other entity. "Phase I "has the meaning given to it in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program." "Phase I Completion Date" means the date on which the Construction Supervisor issues a written notice (the "Phase I Completion Notice") to the Company and the Disbursement Agent certifying that (a) the process units and supporting facilities included in the definition of "Phase I" have reached Mechanical Completion in accordance with the Plans, and (b) for a period of at least 15 consecutive days, the Company's refinery has sustained (i) the successful performance of the Delayed Coking Unit, the HDS Unit and the Sulfur Recovery System, (ii) an average feedstock throughput level of at least 150,000 barrels per day, and (iii) no net production of vacuum tower bottoms when using as input a combined feedstock slate with an average API Gravity of 22 degrees or less. "Phase II" has the meaning given to it in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program." "Phase II Completion Date" means the date on which the Construction Supervisor issues a written notice (the "Phase II Completion Notice") to the Company and the Disbursement Agent certifying that (a) the process units and supporting facilities included in the definition of "Phase II" have reached Mechanical Completion in accordance with the Plans, and (b) for a period of at least 72 uninterrupted hours, the 14 21 Company's refinery has sustained (i) the successful performance of all of the Phase I facilities plus the Fluid Catalytic Cracking (FCC) Unit, the FCC Flue Gas Scrubber and the Alkylation Unit, (ii) an average feedstock throughput level of at least 180,000 barrels per day, and (iii) average production yields (measured as the liquid volume percent of feedstock throughput) of refined products with a specific gravity of gasoline or lighter of at least 40% and of middle distillates or lighter of at least 70%, when using a combined Crude Unit feedstock slate with an average API Gravity of 22 degrees or less. "Plans" means (a) the plans and specifications prepared by or on behalf of the Company as used in the Disbursement Agreement, which describe and show the proposed expansion and modification of the Company's refinery and (b) a budget prepared by or on behalf of the Company as used in the Disbursement Agreement. "Post-Commencement Amounts" means all interest and fees accrued or accruing after the commencement of any proceeding initiated under any Bankruptcy Law in accordance with and at the contract rate (including, without limitation, any non-usurious rate applicable upon default) and all premiums, expenses (including costs of collection), indemnities and other amounts that would have accrued or been incurred after the commencement of any such proceeding in any case as specified in any agreement or instrument creating, evidencing, or governing any Senior Debt, whether or not, pursuant to applicable law or otherwise, the claim for such interest, fees, premiums, expenses, indemnities or other amounts is allowed and non-avoidable as a claim in such proceeding. "Preferred Stock" means, with respect to any corporation, any class or classes (however designated) of Capital Stock of such Person that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation over shares of Capital Stock of any other class of such corporation. "principal amount" when used with respect to a Note means the principal amount of such Note as indicated on the face of such Note. "Property" means any right or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Public Equity Offering" means an underwritten public offering by a nationally recognized member of the National Association of Securities Dealers of Qualified Capital Stock of any Person pursuant to an effective registration statement filed with the SEC pursuant to the Securities Act. "Publicly Traded Stock" means, with respect to any Person, Capital Stock of such Person that is registered under Section 12 of the Exchange Act and actively traded on the New York Stock Exchange or American Stock Exchange or quoted in the National Association of Securities Dealers Automated Quotation System (National Market System). "QIB" shall mean "qualified institutional buyer" as defined in Rule 144A. "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 15 22 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. "Record Date" means a Record Date specified in the Notes regardless of whether such Record Date is a Business Day. "Redemption Date" means, when used with respect to any Note to be redeemed, the date fixed for such redemption pursuant to this Indenture and Paragraph 5 in the forms of Note attached hereto as Exhibit A. "Redemption Price" when used with respect to any Note to be redeemed, means the redemption price for such redemption pursuant to Paragraph 5 in the forms of Note attached hereto as Exhibit A which shall include, without duplication, in each case, accrued and unpaid interest to the Redemption Date. "Reference Period" with regard to any 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 this Indenture. "Registrar" shall have the meaning specified in Section 2.3. "Registration Rights Agreements" means the Registration Rights Agreements in connection with the registration under federal securities laws of the Notes. "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. "Related Person" means (i) any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Subsidiary of the Company or any officer, director, or employee of the Company or any Subsidiary of the Company or of such Person, (ii) the spouse, any immediate family member, or any other relative who has the same principal residence of any Person described in clause (i) above, and any Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with, such spouse, family member, or other relative, and (iii) any trust in which any Person described in clause (i) or (ii), above, is a fiduciary or has a beneficial interest. For purposes of this definition the term "control" means (a) the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise, or (b) the beneficial ownership of 10% or more of the voting common equity of such 16 23 Person (on a fully diluted basis) or of warrants or other rights to acquire such equity (whether or not presently exercisable). "Restricted Investment" means any direct or indirect Investment by the Company or any Subsidiary of the Company other than a Permitted Investment. "Restricted Notes" means the Notes required to bear the legends set forth in Exhibit A hereto. "Restricted Payment" means, with respect to any Person, (i) any Restricted Investment, (ii) any dividend or other distribution on shares of Capital Stock of such Person or any Subsidiary of such Person, (iii) any payment on account of the purchase, redemption, or other acquisition or retirement for value of any shares of Capital Stock of such Person, and (iv) any defeasance, redemption, repurchase, or other acquisition or retirement for value, or any payment in respect of any amendment in anticipation of or in connection with any such retirement, acquisition, or defeasance, in whole or in part, of any Pari Passu Debt or Subordinated Debt, directly or indirectly, of such Person or a Subsidiary of such Person prior to the scheduled maturity or prior to any scheduled repayment of principal in respect of such Pari Passu Debt or Subordinated Debt; provided, however, that the term "Restricted Payment" does not include (i) any dividend, distribution, or other payment on shares of Capital Stock of an issuer solely in shares of Qualified Capital Stock of such issuer that is at least as junior in ranking as the Capital Stock on which such dividend, distribution, or other payment is to be made, (ii) any dividend, distribution, or other payment to the Company from any of its Subsidiaries, (iii) any defeasance, redemption, repurchase, or other acquisition or retirement for value, in whole or in part, of any Pari Passu Debt or Subordinated Debt of such Person payable solely in shares of Qualified Capital Stock of such Person, (iv) any payments or distributions made pursuant to and in accordance with the 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 clause (o) of the covenant described herein under the heading "Limitation on the Incurrences of Additional Debt and Issuances of Disqualified Capital Stock," (vii) the purchase by the Company of shares of Capital Stock of the Company, TransTexas or TTXD in connection with each of its employee benefit plans, including without limitation any employee stock ownership plans or any employee stock option plans, in an aggregate amount not to exceed 7% of the aggregate market value of the voting stock held by nonaffiliates of the issuer measured from the date of the first such purchase, (viii) distributions of common stock of TransTexas to TEC, and (ix) any dividend or other distribution on the Capital Stock of any Subsidiary of the Company. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "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. 17 24 "Senior Debt" means, all Debt of the Company, including, without limitation, the TARC Discount Notes, the TARC Mortgage Notes, the TARC Working Capital Note and the TARC Intercompany Loan, now or hereafter created, incurred, assumed or guaranteed by the Company (and all renewals, extensions or refundings thereof or of any part thereof) (including the principal of, interest on and fees, premiums, expenses (including costs of collection), indemnities and other amounts payable in connection with such Indebtedness, and including Post-Commencement Amounts), unless the instrument governing such Debt expressly provides that such Debt is not senior or superior in right of payment to the Notes. Notwithstanding the foregoing, Senior Debt of the Company shall not include (i) Debt evidenced by the Notes, (ii) Debt of the Company to any Subsidiary of the Company or to any Unrestricted Subsidiary of the Company, or (iii) any amounts payable or other Debt to trade creditors created, incurred, assumed or guaranteed by the Company or any Subsidiary of the Company in the ordinary course of business in connection with obtaining goods or services.. "Services Agreement" means the Services Agreement among TNGC Holdings and its Subsidiaries, as in effect on the Issue Date and as amended from time to time, provided that any such amendment is not materially adverse to the holders of the Notes. "Special Record Date" for payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.12. "Stated Maturity," when used with respect to 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 a 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. 18 25 "Surviving Person" shall have the meaning specified in Section 5.1(a). "Swap Obligation" of any Person means any Interest Rate or Currency Agreement entered into with one or more financial institutions or one or more futures exchanges in the ordinary course of business and not for purposes of speculation that is designed to protect such Person against fluctuations in (x) interest rates with respect to Debt Incurred and which shall have a notional amount no greater than 105% of the principal amount of the Debt being hedged thereby, or (y) currency exchange rate fluctuations. "TARC" means TransAmerican Refining Corporation, a Texas corporation, and any successor corporation pursuant to the terms of the provision described under Article V. "TARC Borrowing Base" means, as of any date, an amount equal to the sum of (a) 90% of the book value of all accounts receivable owned by the Company 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 the Company and its Subsidiaries as of such date. To the extent that information is not available as to the amount of accounts receivable as of a specific date, the Company may utilize, to the extent reasonable, the most recent available information for purposes of calculating the TARC Borrowing Base. "TARC Discount Notes" means the Guaranteed First Mortgage Discount Notes due 2002 issued by TARC and guaranteed by TEC. "TARC Entities" means TARC and each of its Subsidiaries. "TARC Intercompany Loan" means the senior secured promissory note from 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." "TARC Mortgage Notes" means the Guaranteed First Mortgage Notes due 2002 issued by TARC and guaranteed by TEC. "TARC Working Capital Note" means the promissory note from the Company to TEC dated as of July 31, 1997. "Tax Allocation Agreement" means the Tax Allocation Agreement, dated as of August 24, 1993, among TNGC Holdings Corporation, the Company , TEC and other subsidiaries of TNGC Holdings Corporation as in effect on the Issue Date and as amended from time to time, provided that any such amendment is not materially adverse to the holders of the Notes. "TEC" means TransAmerican Energy Corporation, a Delaware corporation. "TEC Indenture" means the indenture, dated as of June 13, 1997, by and between TEC and Firstar Bank of Minnesota, N.A., as trustee, relating to the TEC Notes. "TEC Indenture Trustee" means the trustee under TEC Indenture. 19 26 "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. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the execution of this Indenture. "Trading Day" means any day on which the securities in question are quoted on the NYSE, or if such securities are not approved for listing on the NYSE, on the principal national securities market or exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities market or exchange, on the NNM. "TransAmerican" means TransAmerican Natural Gas Corporation, a Texas corporation. "Transfer Agreement" means the Transfer Agreement, dated as of August 24, 1993, among TransAmerican, TransTexas Transmission Corporation, and John R. 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. "TransTexas" means TransTexas Gas Corporation, a Delaware corporation. "Trust Officer" means any officer within the corporate trust department (or any successor group) of the Trustee including any vice president, assistant vice president, secretary, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer of the corporate trust department (or any successor group) of the Trustee to whom such trust matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "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. "Units" means the Units consisting of $175,000,000 aggregate principal amount of Notes and 2,335,245 Warrants, issued by the Company. Each Unit consists of one Note in the principal amount of $1000 and one Warrant to purchase 13.344257 shares of the Company's common stock, par value $.01 per share. "Unrestricted Non-Recourse Debt" of the Company or any of its Subsidiaries means (i) Debt of such Person that is secured solely (other than with respect to clause (ii) below) by a Lien upon the stock of an Unrestricted Subsidiary of such Person and as to which there is no recourse (other than with respect to clause (ii) below) against such Person or any of its assets other than against such stock (and the dollar amount of any Debt of such Person as described in this clause (i) shall be deemed to be zero for purposes of all other provisions of the Indenture) and (ii) guarantees of the Debt of Unrestricted Subsidiaries of such Person; provided, that the aggregate of all Debt of such Person Incurred and outstanding pursuant to clause (ii) of this definition, together with all Permitted Investments (net of any return on such Investment) in Unrestricted Subsidiaries of such Person, does not exceed 20% of TARC's Consolidated EBITDA since the Phase II 20 27 Completion Date in the case of TARC plus in the case of clause (ii) of this definition of Unrestricted Non-Recourse Debt, Restricted Payments permitted to be made pursuant to 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 Section 4.3 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 Section 4.11 (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. "U.S. Government Obligations" means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Value" means, as of any date, the outstanding principal amount of the Notes, plus all accrued and unpaid interest thereon. "Vehicles" means all trucks, automobiles, trailers and other vehicles covered by a certificate of title. 21 28 "Voting Stock" means Capital Stock of a Person having generally the right to vote in the election of directors of such Person. "Warrant" means any one of the warrants to purchase shares of Common Stock issued by the Company pursuant to the Warrant Agreement, other than the warrants issued by the Company to Jefferies & Company, Inc. pursuant to the Solicitation Agent Agreement, dated as of December 22, 1997, among the Company, TEC and Jefferies & Company, Inc. "Warrant Agent" means First Union National Bank, in its capacity as Warrant Agent under the Warrant Agreement, and any successor thereto. "Warrant Agreement" means the Warrant Agreement, dated the Closing Date, by and between the Company and the Warrant Agent. Section 1.2 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Notes. "indenture securityholder" means a Holder or a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Notes means the Company and any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them thereby. Section 1.3 Rules of Construction. Unless the context otherwise requires: (l) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accor dance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; 22 29 (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (7) references to Sections or Articles means reference to such Section or Article in this Indenture, unless stated otherwise. ARTICLE II THE NOTES Section 2.1 Form and Dating. Subject to Section 2.15, the Notes and the Trustee's certificate of authentication, in respect thereof, shall be substantially in the form of Exhibit A, the terms of which are incorporated in and made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Any such notations, legends or endorsements not contained in the forms of Note attached as Exhibit A hereto shall be delivered in writing to the Trustee. Each Note shall be dated the date of its authentication. The terms and provisions contained in the forms of Note shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. In the event of any inconsistency between the Notes and this Indenture, this Indenture controls. The Notes will be issued (i) in global form (the "Global Note"), substantially in the form of Exhibit A attached hereto (including the text referred to in footnotes 1 and 2 thereto) and (ii) in definitive form (the "Definitive Notes"), substantially in the form of Exhibit A attached hereto (excluding the text referred to in footnotes 1 and 2 thereto). The Global Note shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon; provided, that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2 Execution and Authentication. Two Officers shall sign, or one Officer shall sign and one Officer or any Assistant Secretary shall attest to, the Notes or the Units, as the case may be, for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Notes or Units, as the case may be, and may be in facsimile form. If an Officer whose signature is on a Note or Unit, as the case may be, was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Note or Unit, as the case may be, the Note or Unit, as the case may be, shall be valid nevertheless and the Company shall nevertheless be bound by the terms of the Notes or Units, as the case may be and this Indenture. A Note or Warrant, as the case may be, shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note or Unit, as the case may be, but such signature 23 30 shall be conclusive evidence that the Note or Unit, as the case may be, has been authenticated pursuant to the terms of this Indenture. The Trustee shall authenticate Notes or Units, as the case may be, for original issue in the aggregate principal amount of up to an amount that will result in proceeds to the Company of $200,000,000, upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Notes or Units, as the case may be, to be authenticated and the date on which the Notes or Units, as the case may be, are to be authenticated. The aggregate principal amount of Notes or Units, as the case may be, outstanding at any time may not exceed an amount that will result in proceeds to the Company of $200,000,000, except as provided in Section 2.7. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Notes or Units, as the case may be, in substitution of Notes or Units, as the case may be, originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes or Units, as the case may be. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes or Units, as the case may be, whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with any Obligor, any Affiliate of any Obligor, or any of their respective Subsidiaries. Notes shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. Section 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan in the City of New York, New York, where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency in the Borough of Manhattan in the City of New York, New York, where Notes may be presented for payment ("Paying Agent"). Notices and demands to or upon the Company in respect of the Notes may be served as is provided in Section 13.2. The Company or any Affiliate of the Company may act as Registrar or Paying Agent, except that, for the purposes of Articles III, VIII and XI and Sections 4.14 and 4.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent. The Company hereby initially appoints the Trustee as Registrar and Paying Agent, and the Trustee hereby initially agrees so to act. The Company shall enter into an appropriate written agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee in writing in advance of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints DTC to act as Depository with respect to the Global Notes. The Trustee shall act as custodian for the Depository with respect to the Global Notes. Section 2.4 Paying Agent to Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and shall notify the Trustee in writing of any Default in making any such payment. If the Company or any Affiliate 24 31 of the Company acts as Paying Agent, it shall segregate such assets and hold them as a separate trust fund for the benefit of the Holders or the Trustee. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent (if other than the Company, or any Affiliate of the Company) shall have no further liability for such assets. Section 2.5 Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before the third Business Day preceding each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee reasonably may require of the names and addresses of Holders. Section 2.6 Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request (1) to register the transfer of the Definitive Notes or (2) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, that the Definitive Notes so presented (A) have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing; and (B) in the case of a Restricted Note, such request shall be accompanied by the following additional documents: (i) if such Restricted Note is being delivered to the Registrar by a Holder for registration in the name of such Holder, without trans fer, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (ii) if such Restricted Note is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (iii) if such Restricted Note is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto) and an opinion of counsel reasonably acceptable to the Company and the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may be exchanged for a beneficial interest in a Global Note only upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: 25 32 (i) written instructions directing the Trustee to make an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, and (ii) if such Definitive Note is a Restricted Note, a certification (in substantially the form of Exhibit C attached hereto) to the effect that such Definitive Note is being transferred to a QIB in accordance with Rule 144A; in which case the Trustee shall cancel such Definitive Note and cause the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Note is then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture and the procedures of the Depository therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. Upon receipt by the Trustee of written transfer instructions (or such other form of instructions as is customary for the Depository), from the Depository (or its nominee) on behalf of any Person having a beneficial interest in a Global Note, the Trustee shall, in accordance with the standing instructions and procedures existing between the Depository and the Trustee, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee a Definitive Note in the appropriate principal amount; provided, that in the case of a Restricted Note, such instructions shall be accompanied by the following additional documents: (i) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (ii) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (iii) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto) and, if the Trustee deems it appropriate, an opinion of counsel reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. Definitive Notes issued in exchange for a beneficial interest in a Global Note shall be registered in such names and in such authorized denominations as the Depository shall instruct the Trustee. 26 33 (e) Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture, the Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository; provided, that if: (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository and a successor Depository is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute and the Trustee shall authenticate and make available for delivery, Definitive Notes in an aggregate principal amount equal to the aggregate principal amount of the Global Note in exchange for such Global Note. (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in the Global Note have either been exchanged for Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be returned to or retained and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the aggregate principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee to reflect such reduction. (g) General Provisions Relating to Transfers and Exchanges of Notes. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be legal, valid and binding obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange (without transfer to another person) pursuant to Sections 2.10, 3.1, 4.14, 4.21, 4.24, Article XI and 9.5 of this Indenture). The Company shall not be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (iii) register the transfer of or exchange a Note between a record date and the next succeeding interest payment date. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of 27 34 such Note for all purposes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (h) Exchange of Series A Notes for Series B Notes. The Series A Notes may be exchanged for Series B Notes pursuant to the terms of the Exchange Offer. The Trustee and Registrar shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (A) upon issuance of the Series B Notes, the transactions contemplated by the Exchange Offer have been consummated; and (B) the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by a Global Note and the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by Definitive Notes, the name of each Holder of such Definitive Notes, the principal amount at maturity properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Notes for Series B Notes shall be registered and sent for each such Holder. The Trustee, upon receipt of (i) such Officers' Certificate and (ii) an Opinion of Counsel (x) to the effect that the Series B Notes have been registered under Section 5 of the Securities Act and this Indenture has been qualified under the TIA and (y) with respect to the matters set forth in Section 6 of the Registration Rights Agreement, shall authenticate (A) a Global Note for Series B Notes in an aggregate principal amount equal to the aggregate principal amount of Series A Notes represented by a Global Note indicated in such Officers' Certificate as having been properly tendered and (B) Definitive Notes representing Series B Notes registered in the names of, and in the principal amounts indicated in such Officers' Certificate. If the principal amount at maturity of the Global Note for the Series B Notes is less than the principal amount at maturity of the Global Note for the Series A Notes, the Trustee shall make an endorsement on such Global Note for Series A Notes indicating a reduction in the principal amount at maturity represented thereby. The Trustee shall deliver such Definitive Notes for Series B Notes to the Holders thereof as indicated in such Officers' Certificate. Section 2.7 Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims and submits an affidavit or other evidence, satisfactory to the Company and Trustee, to the Trustee to the effect that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. The Company and the Trustee may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Note. Every replacement Note is an additional obligation of the Company. Section 2.8 Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation, those 28 35 reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.8 as not outstanding. A Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note, except as provided in Section 2.9. If a Note is replaced pursuant to Section 2.7 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or an Affiliate of the Company) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. Section 2.9 Treasury Notes. In determining whether the Holders of the required Value of Notes have concurred in any direction, amendment, supplement, waiver or consent, Notes owned by the Company and Affiliates of the Company shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, amendment, supplement, waiver or consent, only Notes that the Trustee knows or has reason to know are so owned shall be disregarded. Section 2.10 Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company reasonably and in good faith considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as permanent Notes authenticated and delivered hereunder. Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or any Affiliate of the Company, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, the Company may not issue new Notes to replace Notes it has paid or delivered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.11, except as expressly permitted in the forms of Note and as permitted by this Indenture. Section 2.12 Defaulted Interest. Interest on any outstanding Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note (or one or more predecessor Notes) is registered at the close of business on the Record Date for such interest. Any interest on any outstanding Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date plus, to the extent lawful, any interest payable on the defaulted interest (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: 29 36 (1) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as provided in this clause (1). Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address set forth upon the registry books of the Company on the 10th day prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective predecessor Notes) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause accompanied by an Opinion of Counsel stating that the manner of payment complies with this clause, such manner shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. Section 2.13 Computation of Interest. Interest on the Notes will be computed on the basis of a 360- day year consisting of twelve 30-day months. Section 2.14 Legends. (a) Except as permitted by subsections (b) or (c) hereof, each Note shall bear legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A or Exhibit B attached hereto, as applicable. (b) Upon any sale or transfer of a Restricted Note (including any Restricted Note represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: 30 37 (i) in the case of any Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Restrict ed Note for a Definitive Note that does not bear the legends required by subsection (a) above; and (ii) in the case of any Restricted Note represented by a Global Note, such Restricted Note shall not be required to bear the legends required by subsection (a) above, but shall continue to be subject to the provisions of Section 2.6(c) or (k), as applicable, hereof; provided, that with respect to any request for an exchange of a Restricted Note that is represented by a Global Note for a Definitive Note that does not bear the legends required by subsection (a) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144. (c) The Company shall issue and the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer. The Series B Notes shall not bear the legends required by subsection (a) above unless the Holder of such Series B Notes is either (A) a broker-dealer who purchased such Series B Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Series B Notes or Series B or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. Section 2.15 Separation of Notes and Warrants. The Notes and the Warrants that comprise the Units shall not be separately transferable until the earlier of (i) one year from the date hereof, (ii) commencement of the Exchange Offer and (iii) such other date as may be determined by Jefferies & Company, Inc. The Units and the beneficial interest in the Notes and the Warrants that comprise the Units shall be evidenced only by one or more certificates in substantially the form of Exhibit B hereto, the terms of which are incorporated in and made a part of this Indenture. The terms of the Warrants are governed by the Warrant Agreement and are subject to the terms and provisions contained therein. If any Units are presented for registration of transfer or exchange in accordance with the terms of this Indenture and the Warrant Agreement, or if the Warrants evidenced thereby are exercised, the Company shall cause the Trustee, the Registrar or the Warrant Agent, as appropriate, to issue certificates evidencing the Notes and the Warrants (to the extent unexercised) in lieu of such Units. In accordance with the Warrant Agreement, fractional Warrants will not be issued upon separation of the Notes and Warrants, but in lieu thereof, a cash adjustment will be paid. The provisions of Section 2.1 through 2.14, to the extent applicable to the Notes, shall also apply to the Notes evidenced by any Units. 31 38 ARTICLE III REDEMPTION Section 3.1 Right of Redemption. Redemption of Notes, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article III. The Company may redeem at its election, at any time on or after the Issue Date, any or all of the Notes in cash at the applicable Redemption Prices specified in Paragraph 5 of the forms of Note attached as Exhibit A hereto, set forth therein under the caption "Optional Redemption," including accrued and unpaid interest, if any, to the Redemption Date. Section 3.2 Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 5 of the Notes, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders. The Company shall give each notice to the Trustee provided for in this Section 3.2 at least 30 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). Section 3.3 Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed pursuant to Paragraph 5 thereof, the Trustee shall select the Notes to be redeemed pro rata, by lot or in such other manner as in its sole discretion it deems appropriate and fair, and in such manner as complies with any applicable legal and stock exchange requirements. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.4 Notice of Redemption. At least 15 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail, postage prepaid, to the Trustee and each Holder whose Notes are to be redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. 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. Each notice for redemption shall identify the Notes to be redeemed and shall state the following and such other matters as the Trustee shall deem proper: (1) the Redemption Date; (2) the Redemption Price, including the amount of accrued and unpaid interest to be paid upon such redemption; (3) the name, address and telephone number of the Paying Agent; 32 39 (4) that Notes called for redemption must be surrendered to the Paying Agent at the address specified in such notice to collect the Redemption Price; (5) that, unless the Company defaults in its obligation to deposit U.S. Legal Tender with the Paying Agent in accordance with Section 3.6, interest on Notes called for redemption ceases to accrue and/or the original issue discount ceases to accrete on Notes called for redemption on and after the Redemption Date and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, including accrued and unpaid interest, upon surrender to the Paying Agent of the Notes called for redemption and to be redeemed; (6) if any Note is being redeemed in part, the portion of the principal amount, equal to $1,000 or any integral multiple thereof, of such Note that will not be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued; (7) if less than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of such Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; (8) the CUSIP number of the Notes to be redeemed; and (9) that the notice is being sent pursuant to this Section 3.4 and pursuant to the re demption provisions of Paragraph 5 of the Notes. Section 3.5 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.4, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price, including accrued and unpaid interest; provided, however, that 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. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price, including interest, if any, accrued and unpaid on the Redemption Date; provided that if the Redemption Date is after a regular Record Date and on or prior to the Interest Payment Date, the accrued interest through the date of redemption shall be payable to the Holder of the redeemed Notes registered on the relevant Record Date; and provided, further, that if a Redemption Date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Upon compliance by the Company with the provisions of this Article III, including but not limited to Section 3.6, and upon satisfaction or waiver of any conditions precedent to the Company's obligation to effect such redemption contained in the related notice of redemption, interest on the Notes called for redemption will cease to accrue, and/or the original issue discount will cease to accrete on the Notes called for redemption, on and after the Redemption Date, regardless of whether such Notes are presented for payment. 33 40 Section 3.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Paying Agent (other than the Company or an Affiliate of the Company) U.S. Legal Tender sufficient to pay the Redemption Price of, including accrued and unpaid interest on, all Notes to be redeemed on such Redemption Date (other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of the Company. If the Company complies with the preceding paragraph and the other provisions of this Article III, interest on the Notes to be redeemed will cease to accrue on the applicable Redemption Date, and/or the original issue discount will cease to accrete on the Notes to be redeemed on the applicable Redemption Date, regardless of whether such Notes are presented for payment. Notwithstanding anything herein to the contrary, if any Note surrendered for redemption in the manner provided in the Notes shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall continue to accrue and be paid from the Redemption Date until such payment is made on the unpaid principal and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 4.1 and the Note. Section 3.7 Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder, without service charge, a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE IV COVENANTS Section 4.1 Payment of Notes. The Company shall pay the principal of and interest on the outstanding Notes on the dates and in the manner provided in the Notes to the Trustee at its New York agent's office unless otherwise instructed in writing by the Trustee. An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds for the benefit of the Holders, on or before 11:00 a.m. Houston, Texas time on that date, U.S. Legal Tender deposited and designated for and sufficient to pay the installment. The Company shall pay any and all amounts, including without limitation, Liquidated Damages, if any, on the dates and in the manner required under the Registration Rights Agreement. The Company shall pay interest on overdue principal and on overdue installments of interest at the rate specified in the Notes compounded semi-annually, to the extent lawful. Notwithstanding anything to the contrary contained in this Indenture, the Company or the Trustee may, to the extent required by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium or interest payments on the Notes. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan in the City of New York, New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such 34 41 office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan in the City of New York, New York, for such purposes. The Company shall give prior written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the corporate trust office of the Trustee in the Borough of Manhattan in the City of New York, New York, as such office of the Company. 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 may make a Restricted Payment if, at the time or after giving effect thereto on a pro forma basis no Default or Event of Default would occur or be continuing, and: (a) 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 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 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 4.4 Corporate Existence. Subject to Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Subsidiaries in accordance with the respective organizational documents of each of them and the rights (charter and statutory) and corporate franchises of the Company and each of its Subsidiaries; provided, however, that the Company shall not be required to preserve, with respect to itself, 35 42 any right or franchise, and with respect to any of its Subsidiaries, any such existence, right or franchise, if (a) the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and (b) the loss thereof is not disadvantageous in any material respect to the Holders. Section 4.5 Payment of Taxes and Other Claims. The Company shall, and shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon the Company or any of its Subsidiaries or any of their respective properties and assets; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been established in accordance with GAAP. Section 4.6 Maintenance of Properties and Insurance. (a) Each of the Company and its Subsidiaries shall cause the properties used or useful to the conduct of its business and the business of each of its Subsidiaries to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its reasonable judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (b) Each of the Company and its Subsidiaries shall provide, or shall 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. Section 4.7 Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 60 days after the end of each of its fiscal quarters, or 105 days after the end of a fiscal quarter that is also the end of a fiscal year, an Officers' Certificate complying with Section 314(a)(4) of the TIA and stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal quarter has been made under the supervision of the signing Officers with a view to determining whether the Company and its Subsidiaries have kept, observed, performed and fulfilled its obligations (excluding those obligations addressed by Section 12.3) under this Indenture and further stating, as to each such Officer signing such certificate, regardless of whether the signer knows of any failure by the Company or any Subsidiary of the Company to comply with any conditions or covenants in this Indenture, or of the occurrence of any Default, and, if such signor does know of such a failure to comply or Default, the certificate shall describe such failure or Default with particularity. (b) The Company shall deliver to the Trustee within 105 days after the end of each of its fiscal years a written report of a firm of independent certified public accountants with an established national reputation stating that in conducting their audit for such fiscal year, nothing has come to their attention that caused them 36 43 to believe that the Company or any Subsidiary of the Company was not in compliance with the provisions set forth in Section 4.3, 4.11 or 4.14. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, immediately upon becoming aware of any Default or Event of Default under this Indenture, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of a Default or an Event of Default unless one of its trust officers receives notice of the Default giving rise thereto from the Company or any of the Holders. (d) The Company shall deliver to the Trustee an Officers' Certificate specifying any changes in the composition of the Board of Directors of the Company or any of its Subsidiaries or of any amendment to the charter or bylaws of the Company or any of its Subsidiaries. The Officers' Certificate shall include a description in reasonable detail of such amendment or change and an explanation why such amendment or change does not constitute a Default or Event of Default. 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 preceding paragraph. The Company shall also comply with the other provisions of TIA ss. 314(a). So long as is required for an offer or sale of the Notes to qualify for an exemption under Rule 144A, the Company shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Notes identified by any Holder of Restricted Notes. Section 4.9 Limitation on Status as Investment Company or Public Utility Company. The Company shall not, and shall not permit any of its Subsidiaries to, become an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or a "holding company," or "public utility company" (as such terms are defined in the Public Utility Holding Company Act of 1935, as amended) or otherwise become subject to regulation under the Investment Company Act or the Public Utility Holding Company Act. Section 4.10 Limitation on Transactions with Related Persons. (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 37 44 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), and (xvi) 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 transactions between Wholly Owned Subsidiaries of the Company, (D) transactions pursuant to the Services Agreement, the Transfer Agreement, the Tax Allocation Agreement, the Gas Purchase Agreement, the Expense Reimbursement Agreement, the TARC Intercompany Loan and 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 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 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; and (I) the Company and its Subsidiaries may pay a management fee to TransAmerican in an amount not to exceed $2,500,000 per year. (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), or (G) 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) or (G) 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 "big 6 accounting firm" or a nationally recognized investment banking firm; provided that such opinion shall not be necessary if approval of the Board of Directors to such Related Person Transaction has been obtained after receipt of bona fide bids of at least two other independent parties and such Related Person Transaction is in the ordinary course of business. 38 45 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 any of its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, or otherwise become liable for, contingently or otherwise (to "Incur" or, as appropriate, an "Incurrence"), any Debt or issue any Disqualified Capital Stock, except : (a) Debt evidenced by the Notes and the Guarantees 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, or Debt of any wholly owned Subsidiary of the Company solely to the Company or to any wholly owned Subsidiary of the Company; (d) Debt of the Company outstanding at any time in an aggregate principal amount not to exceed the greater of (x) $100 million or (y) the TARC Borrowing Base, less, in each case, the amount of any Debt of an Accounts Receivable Subsidiary (other than Debt owed to the Company); (e) Debt in an aggregate principal amount not to exceed at any one time $50 million; (f) Debt secured by the Storage Assets in an aggregate amount outstanding at any one time not to exceed $115 million; (g) Debt secured by a Permitted Lien that meets the requirements of clause (c), (g), (m), (o) and (r) of the definition of "Permitted Liens," to the extent that such Liens would give rise to Debt under clauses (i), (ii), or (iii) of the definition of "Debt;" (h) Any guaranty of Debt 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 of the Company; (j) Unrestricted Non-Recourse Debt of the Company; (k) Debt evidenced by the TARC Mortgage Notes; (l) letters of credit and reimbursement obligations relating thereto to the extent collateralized by cash or Cash Equivalents; (m) Debt evidenced by the TARC Discount Notes; (n) Debt of TARC or any of its Subsidiaries owed to TEC which is loaned pursuant to terms of the fourth paragraph of either of the covenants contained 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) the Company may Incur Debt as an extension, renewal, replacement, or refunding of any of the Debt permitted to be Incurred by clauses (b), (p) or (r) hereof, or this clause (o) (such Debt is collectively referred to as "Refinancing Debt"), provided, that (1) the maximum principal amount of Refinancing Debt (or, if such Refinancing Debt is issued with original issue discount, the original issue price of such Refinancing Debt) permitted under this clause (o) may not exceed the lesser of (x) the principal amount of the Debt being extended, renewed, replaced, or refunded plus Refinancing Fees or (y) if such Debt being extended, renewed, replaced, or refunded was issued at an original issue discount, the original issue price, plus amortization of the original issue discount as of the time of the Incurrence of the Refinancing Debt plus Refinancing Fees and (2) the Refinancing Debt shall rank with respect to the Notes to an extent no less favorable in respect thereof to the Holders than the Debt being refinanced; (p) Pari Passu Debt or Subordinated Debt of the Company with initial net proceeds to the Company not in excess of $25 million in the aggregate 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 the Company Incurred in connection with the acquisition, construction or improvement of a CATOFIN(R) Unit not in excess of 20% of the Company's Consolidated EBITDA accrued for the period (taken as one accounting period) commencing with the first full fiscal quarter that commenced after the Phase I Completion Date, to and including the fiscal quarter ended immediately prior to the date of such calculation, provided, that, no such Debt may be Incurred unless (i) the Phase II Completion Date has occurred or (ii) the Construction 39 46 Supervisor shall have provided the Trustee with written certification that, based upon its bi-monthly evaluation of the Capital Improvement Program, the amounts remaining in the disbursement accounts to complete Phase II are sufficient to complete Phase II in accordance with the Plans approved by the Construction Supervisor, and (s) Debt of the Company owed to TEC that does not in the aggregate exceed $50 million principal 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 may Incur Senior Debt and the Company may issue Disqualified Capital Stock if, at the time such Senior Debt is Incurred or such Disqualified Capital Stock is issued, (i) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such transaction on a pro forma basis, and (ii) immediately after giving effect to the Consolidated 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 Company for the Reference Period is greater than 2.25 to l, and (b) the Company may Incur Subordinated Debt if, at the time such Subordinated Debt is incurred, (i) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such transaction on a pro forma basis, and (ii) immediately after giving effect to the Consolidated 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 Company for the Reference Period is greater than 2.0 to I. Debt Incurred and Disqualified Capital Stock issued by any Person that is not a Subsidiary of the Company 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 or one of its Subsidiaries, as the case may be, shall be deemed to have been Incurred or issued, as the case may be, at the time such Person becomes a Subsidiary of, or is merged into, or consolidated with or one of its Subsidiaries. For the purpose of determining compliance with this covenant, (A) if an item of Debt meets the criteria of more than one of the types of Debt described in the above clauses, the Company or the Subsidiary in question shall have the right to determine in its sole discretion the category to which such Debt applies and shall not be required to include the amount and type of such Debt in more than one of such categories and may elect to apportion such item of Debt between or among any two or more of such categories otherwise applicable, and (B) the amount of any Debt which does not pay interest in cash or which was issued at a discount to face value shall be deemed to be equal to the amount of the liability in respect thereof determined in accordance with GAAP. Section 4.12 Limitations on Restricting Subsidiary Dividends. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, assume, or suffer to exist any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to pay dividends or make other distributions on the Capital Stock of any Subsidiary of the Company, except encumbrances and restrictions existing under this Indenture and any agreement of a Person acquired by the Company or a Subsidiary of the Company, which restrictions existed at the time of acquisition, were not put in place in anticipation of such 40 47 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, the Company may not create an encumbrance or restriction on their ability to pay premium, if any, principal of, or interest on, the TARC Intercompany Loan. 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. 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. The Company covenants to grant to the Trustee on behalf of the Holders a Lien on the assets of the Company currently subject to a Lien in favor of TEC; provided, that the Company shall not be required to grant such Lien until the TARC Intercompany Loan has been paid in full and has not been refinanced, refunded or replaced with the proceeds of Other Debt ("Other Debt"), which Other Debt has a lower cost of capital to TARC than the TARC Intercompany Loan and the principal amount of such Other Debt (or, if such Other Debt is issued with original issue discount, the original issue 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. Section 4.14 Limitation on Asset Sales. (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless: (i) the Company (or its Subsidiaries, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors and evidenced by a board resolution in the case of any Asset Sales or series of related Asset Sales having a fair market value of $15 million or more); (ii) at least 85% of the proceeds received by the Company (or its Subsidiaries, as the case may be) from each such Asset Sale consists of (A) cash, (B) Cash Equivalents, (C) Publicly Traded Stock or (D) any combination of the foregoing; provided, however, that (l) the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet or in the notes thereto) of the Company or such Subsidiary (other than liabilities that are by their terms expressly subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Subsidiary from such transferee that, within 90 days following the closing of such sale or disposition, are converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision and (2) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company, evidenced by a board resolution) of all consideration of the type specified in clause (C) above received by the Company and its Subsidiaries from all Asset Sales after the Issue Date shall not exceed 15% of Consolidated Net Tangible Assets at the time of such Asset Sale; and (iii) the Net Cash Proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sales are applied in accordance with subsection (c) below. 41 48 (b) Notwithstanding the foregoing limitations on Asset Sales and restrictions on the use of Net Cash Proceeds therefrom: (A) The Company or any Guarantor may convey, sell, lease, transfer, or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any Guarantor; (B) the Company and its Subsidiaries may engage in Asset Sales in the ordinary course of business; (C) the Company and its Subsidiaries may engage in Asset Sales not otherwise permitted in clauses (A), (B) or (D) through (K) of this sentence provided that the aggregate proceeds from all such Asset Sales do not exceed $10 million in any twelve-month period; (D) the Company and its Subsidiaries may engage in Asset Sales pursuant to and in accordance with the provisions described under Article V hereof; (E) the Company and its Subsidiaries may sell, assign, lease, license, transfer, abandon or otherwise dispose of (a) damaged, worn out, unserviceable or other obsolete property in the ordinary course of business or (b) other property no longer necessary for the proper conduct of their business; (F) The Company and its Subsidiaries may sell accounts receivable to an Accounts Receivable Subsidiary in accordance with the provisions described under Section 4.20; (G) The Company and its Subsidiaries may convey, sell, transfer or otherwise dispose of crude oil and refined products in the ordinary course of business; (H) The Company and its Subsidiaries may engage in Asset Sales (a) the Net Cash Proceeds of which are used for (i) payment of cash interest on the Notes or (ii) a one-time payment of cash interest on the TARC Intercompany Loan, (b) in connection with the settlement of litigation or the payment of judgments or (c) the Net Cash Proceeds of which are used in connection with the settlement of litigation or for the payment of judgments; provided, that the aggregate value of assets transferred pursuant to clauses (b) and (c) above from and after the Issue Date does not exceed $25,000,000; (I) The Company may transfer the Storage Assets in connection with the financing thereof pursuant to clause (f) of the covenant described herein under Section 4.11 hereof; (J) The Company and its Subsidiaries may dispose of assets of the Company or its Subsidiaries in exchange for capital assets that (i) are for use in a Related Business and (ii) have an aggregate fair market value which, when added to the fair market value of any cash, Cash Equivalents or Publicly Traded Stock received by the Company or any of its Subsidiaries in exchange for such capital assets, is equal to or greater than the aggregate fair market value of the property and assets being disposed of, provided, however, that (A) in no event may the Company and its Subsidiaries, in any 12-month period, dispose of assets pursuant to this paragraph having an aggregate fair market value of in excess of $10 million; (K) The Company may sell common stock of TransTexas to TransTexas; and 42 49 (L) Unless otherwise required by the foregoing clauses (A) through (K), the proceeds of any Asset Sale permitted thereby shall be used by the Company or its Subsidiaries for purposes not otherwise prohibited by the Indenture. (c) The Company may, within 360 days following the receipt of Net Cash Proceeds from any Asset Sale, apply an amount equal to such Net Cash Proceeds to: (i) the repayment of Senior Debt of the Company or any Guarantor that results in a permanent reduction in the principal amount of such Senior Debt in an amount equal to the principal amount so repaid or (ii) make Capital Expenditures for use in a Related Business or (iii) make cash payments in the ordinary course of business that are not otherwise prohibited by the Indenture, provided that the aggregate amount so used from and after the Issue Date does not exceed $20,000,000 (without duplication of amounts used for Capital Expenditures in clause (ii) above). If, upon completion of the 360-day period (the "Trigger Date"), an amount equal to any portion of the Net Cash Proceeds of any Asset Sale shall not have been applied by the Company as described in clauses (i), (ii) or (iii) of the preceding paragraph and such amount together with an amount equal to any remaining net cash proceeds from any prior Asset Sale (such aggregate constituting "Excess Proceeds"), exceeds $10 million, then the Company shall make an offer (the "Offer to Purchase") to purchase from all Holders of the Notes and holders of any then outstanding Pari Passu Debt required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Notes and any then outstanding Pari Passu Debt equal to such Excess Proceeds as follows: (l) the Company shall make an offer to purchase from all Holders of the Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1000) of Notes that may be purchased out of an amount (the "Offer Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and such Pari Passu Debt, if any and (ii) to the extent required by such Pari Passu Debt and provided there is a permanent reduction in the principal amount of such Pari Passu Debt and a corresponding permanent reduction in the Company's ability to incur Pari Passu Debt or Subordinated Debt, the Company shall make an offer to purchase such Pari Passu Debt (the "Pari Passu Offer') in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Offer Amount. (2) The offer price for the Notes shall be payable in cash in an amount equal to 100% of the principal amount of the Notes tendered pursuant to an Offer to Purchase, plus accrued and unpaid interest, if any, to the date such Offer to Purchase is consummated (the "Offer Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offer Price of the Notes tendered pursuant to an Offer to Purchase is less than the Offer Amount relating thereto or the aggregate amount of the Pari Passu Debt that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Debt Amount (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or any portion thereof, for general corporate purposes, subject to the "Limitation on Restricted Payments" covenant. (3) If the aggregate Offer Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the Offer Amount, Notes to be purchased will be selected on a pro rata basis. Upon completion of an Offer to Purchase and a Pari Passu Offer, the amount of Excess Proceeds shall be reset to zero. 43 50 The Company, to the extent applicable and if required by law, will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any offer by the Company to purchase the Notes at the option of the holders pursuant to an Offer to Purchase. It is expected that agreements with respect to Senior Debt the Company may enter into would prohibit, and the TARC Intercompany Loan currently prohibits, the repurchase of Debt subordinated to such Senior Debt, which would include the Notes. Failure of the Company to repurchase the Notes validly tendered to the Company pursuant to an Offer to Purchase would create an Event of Default with respect to the Notes. In addition, the subordination provisions of the Indenture prohibit, subject to certain conditions, the repurchase or repayment of the Notes if there is a default under Senior Debt. As a result, the Company may be prohibited from making payment pursuant to an Offer to Purchase in connection with an Asset Sale. Section 4.15 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. It is the intention of the parties hereto to comply strictly with applicable usury laws; accordingly, not withstanding any provision to the contrary in this Indenture or in any of the documents securing the payment of the Notes or otherwise relating thereto, in no event shall this Indenture or such documents require or permit the payment, charging, taking, reserving, or receiving of any sums constituting interest under applicable laws which exceed the maximum amount permitted by such laws. If any such excess interest is contracted for, charged, taken, reserved, or received in connection with the Notes or in any of the documents securing the payment thereof or otherwise relating thereto, or in any communication by the Holders or any other person to the Company or any other person, or in the event all or part of the principal or interest on the Notes shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved, or received on the amount of principal actually outstanding from time to time under the Notes shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) any such excess shall be deemed an accidental and bona fide error and canceled automatically to the extent of such excess, and shall not be collected or collectible, (iii) any such excess which is or has been paid or received notwithstanding this para graph shall be credited against the then unpaid principal balance on the Notes or refunded to the Company, at the Holders' option, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate allowed under applicable laws as construed by courts having jurisdiction hereof or thereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved, or received in connection herewith which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Notes, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, reserved, or received. The terms of this paragraph shall be deemed to be incorporated in every document, security instrument, and communication relating to this Indenture and the Notes. 44 51 Section 4.16 Guarantee by Subsidiaries. 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 covenants 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 this Indenture to the extent set forth in this Section 4.16. The liability of each Guarantor under its Guarantee will be limited to the amount of its Adjusted Net Assets. Section 4.17 Intentionally Omitted. 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. Section 4.19 Separate Existence and Formalities. The Company hereby covenants and agrees that: (a) it will maintain procedures designed to prevent commingling of the funds of the Company, its Subsidiaries' and 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' Certificate of Incorporation or By-laws; (c) the Company and its Subsidiaries will maintain separate records and books of account and such records and books of account shall be separate from those of TransAmerican in each case 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 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, other than pursuant to the Services Agreement. Section 4.20 Accounts Receivable Subsidiary. (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 TARC Borrowing Base at any time; 45 52 (b) The Company may not, nor may it permit any of its Subsidiaries to, sell accounts receivable to an Accounts Receivable Subsidiary except for consideration in an amount not less than that which would be obtained in an arm's length transaction and solely in the form of cash or Cash Equivalents; provided that an Accounts Receivable Subsidiary may pay the purchase price for any such accounts receivable in the form of Accounts Receivable Subsidiary Notes so long as, after giving effect to the issuance of any such Accounts Receivable Subsidiary Notes, the aggregate principal amount of all Accounts Receivable Subsidiary Notes outstanding shall not exceed the greater of $20 million or 20% of the aggregate purchase price paid for all outstanding accounts receivable purchased by an Accounts Receivable Subsidiary since the date of this Indenture (and not written off or required to be written off in accordance with the normal business practice of an Accounts Receivable Subsidiary); (c) The Company may not, nor may it permit any of its Subsidiaries to, enter into any guarantee, subject any of their respective properties or assets (other than the accounts receivable sold by them to an Accounts Receivable Subsidiary) to the satisfaction of any liability or obligation or otherwise incur any liability or obligation (contingent or otherwise), in each case, on behalf of an Accounts Receivable Subsidiary or in connection with any sale of accounts receivable or participation interests therein by or to an Accounts Receivable Subsidiary, other than obligations relating to breaches of representations, warranties, covenants, and other agreements of the Company or any of its Subsidiaries with respect to the accounts receivable sold by the Company or any of its Subsidiaries to an Accounts Receivable Subsidiary or with respect to the servicing thereof; provided that neither the Company nor any of its Subsidiaries shall at any time guarantee or be otherwise liable for the collectibility of accounts receivable sold by them; and (d) The Company 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. Section 4.21 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 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. Section 4.22 Maintenance of Interest Reserve Account. (a) The Company shall establish and maintain with and at the Trustee a custodial account in the name of the Trustee (or any agent thereof) (the "Interest Reserve Account"), under the sole dominion and control of the Trustee. Funds shall be released from the Interest Reserve Account only in accordance with this Section 4.22. 46 53 (b) The Company shall, out of the proceeds received by it from the issuance of the Notes, make an initial deposit into the Interest Reserve Account in the amount of $42,000,000 (the "Interest Reserve Amount"), such deposit being of sufficient amount to pay for the first three (3) semi-annual interest payments on the Notes issued on the date hereof that will become due and payable on June 30, 1998, December 30, 1998 and June 30, 1999 (the "Subject Interest Payment Dates"). If, after the date hereof and prior to June 30, 1999, the Company issues additional Notes (the "Additional Notes") pursuant to the Indenture (other than Notes issued upon transfer of or to replace Notes issued on the date hereof) the Company shall, out of the proceeds received by it from the issuance of the Additional Notes, deposit into the Interest Reserve Account an amount sufficient to pay the interest that will become due and payable on such Additional Notes on the Subject Interest Payment Dates. (c) The Interest Reserve Account will be held in trust by the Trustee for the equal and ratable benefit of the Holders and not commingled with any ordinary deposit or commercial bank account, will be maintained with the corporate trust department of the Trustee for the equal and ratable benefit of the Holders and, to the extent expressly provided herein, for the Company, and will be subject to the provisions of this Agreement. In accordance with written instructions received from the Company, the Trustee shall, subject to the Trustee's rights under this Section 4.22, (i) invest amounts on deposit in the Interest Reserve Account in Cash Equivalents in the name of the Trustee as the Company may select, (ii) invest interest paid on the Cash Equivalents referred to in clause (i) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in Cash Equivalents in the name of the Trustee as the Company may select (the Cash Equivalents referred to in clauses (i) and (ii) above being, collectively, "Reserve Account Investments") and (iii) deposit and hold in the Interest Reserve Account all interest and proceeds that are not invested or reinvested in Reserve Account Investments. All disbursements made to the Holders pursuant to this Agreement shall be made by the Trustee irrespective of, and without deduction for, any counterclaim, defense, recoupment or setoff and shall be final, and the Trustee will not seek to recover from any Holder for any reason any such payment once made. All service charges and fees with respect to the Interest Reserve Account shall be paid by the Company. (d) The Company has no right to direct the Trustee to disburse the funds in the Interest Reserve Account, other than the rights, exercisable upon the giving by the Company of not less than one Business Day prior written notice to the Trustee, (i) from time to time during the term of this Agreement, to direct the Trustee to disburse to or for the account of the Company all or any portion of the interest and other earnings on the funds on deposit in the Interest Reserve Account and on Reserve Account Investments and (ii) if the Company optionally redeems the Notes, from time to time during the term of this Agreement, to direct the Trustee to disburse to or for the account of the Company all or any portion of the funds on deposit in the Interest Reserve Account in an aggregate amount that bears the same proportion to the aggregate amount of funds in 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; provided, however, that the Trustee shall not be required to disburse any funds pursuant to this paragraph (d) after the occurrence and during the continuance of an Event of Default. 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 costs) incurred to permit such release. (e) The Trustee shall liquidate part or all of the Reserve Account Investments, as necessary, to provide the availability of such funds in the Investment Reserve Account as may be necessary to pay (and shall to the extent funds are in the Interest Reserve Account pay therefrom) each of the first three (3) semi-annual interest payments on the Notes, when and as they come due, and to make such disbursements as may from time to time be requested by the Company as permitted hereby. The Trustee shall disburse funds from the Interest Reserve Account solely for the purposes of making the payments and distributions described hereunder. 47 54 (f) Promptly after the payment in full of the interest accrued through and including the installment of interest payable on the June 30, 1999 interest payment, the Trustee shall liquidate all Reserve Account Investments remaining and shall disburse the full amount of the funds then on deposit in the Interest Reserve Account to or for the account of the Company, whereupon the Interest Reserve Account shall be closed; provided, however, that the Trustee shall not disburse any funds pursuant to this paragraph (f) after the occurrence and during the continuance of an Event of Default. If any such Event of Default is continuing at the Interest Payment Date following the Subject Interest Payment Dates, the funds in the Interest Reserve Account shall be applied to (and the Trustee shall, to the extend of such funds, pay therefrom) the interest payment due on such Interest Payment Date. Section 4.23 Restriction on Sale and Issuance of Subsidiary Stock. The Company shall not sell, and shall not permit any of its Subsidiaries to, issue or sell, any shares of Capital Stock of any Subsidiary of the Company to any Person other than the Company or a Wholly Owned Subsidiary of the Company unless an amount equal to the net proceeds of such sale is used by the Company within 180 days after the date of such sale for one or more of the purposes specified in Section 4.14(a). Section 4.24 [Intentionally Omitted]. ARTICLE V SUCCESSOR CORPORATION Section 5.1 When the Company May Merge, Etc. (a) The Company shall not, and shall not permit any Guarantor to, 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: (1) either (a) the Company or the Guarantor, as the case may be, shall be the continuing Person, or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Guarantor, as the case may be, is merged or to which all or substantially all of the properties and assets of the Company, or the Guarantor, as the case may be, are transferred as an entirety or substantially as an entirety (the Company or the Guarantor, as the case may be, or such other Person being hereinafter referred to as the "Surviving Person") shall be a corporation or partnership organized and validly existing under the laws of the United States, any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto executed and delivered to the Trustee on or prior to the consummation of such transaction, in form satisfactory to the Trustee, all the obligations of the Company or the Guarantor, as the case may be, under the Notes and this Indenture; (2) No Default or Event of Default shall exist or shall occur immediately after giving effect to such transaction; (3) on a pro forma consolidated basis, immediately after giving effect to such transaction and the assumption of the obligations contemplated by clause (1), above, and the incurrence or anticipated incurrence of any Debt or Disqualified Capital Stock to be incurred or issued in connection therewith, (x) the Net Worth of the Surviving Person is at least equal to the Net Worth of such predecessor or transferring entity immediately prior to such transaction and (y) except for a merger of the Company 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 48 55 reincorporation in Delaware or a repurchase 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 Person could incur $1.00 of additional Senior Debt pursuant to the third paragraph of Section 4.11, as applicable (in all cases for this purpose only, as if the Phase I Completion Date has occurred); (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, assignment, or transfer and such supplemental indenture comply with this Article V and that all conditions precedent herein provided relating to such transaction have been satisfied; and (5) except for a merger of the Company 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 repurchase 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 Standard & Poor's Corporation, Inc., Moody's Investors Service, Inc. or any successor rating agencies to either entity to a rating below that which existed immediately prior to the time the event specified above is first publicly announced. For purposes of this Section 5.1, the Consolidated Fixed Charge Coverage Ratio shall be determined on a pro forma consolidated basis (giving effect to such transaction) for the four fiscal quarters immediately preceding such transaction. (b) For purposes of clause (a), the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company, instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company, on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. (c) Notwithstanding anything contained in the foregoing to the contrary, any Subsidiary of the Company with a Net Worth greater than zero, may merge into the Company (or a wholly owned Subsidiary of the Company) at any time, provided, that the Company, 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, an Accounts Receivable Subsidiary may merge into the Company, provided, that such merger does not result in a Default or Event of Default hereunder. Section 5.2 Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of assets in accordance with Section 5.1, the Surviving Person formed by such consolidation or into which the Company, 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. 49 56 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be caused voluntarily or involuntarily or effected, without limitation, by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Note as and when the same becomes due and payable, and the continuance of such default for a period of 30 days; (b) default in the payment of all or any part of the principal of (or premium, if any, applicable to), the Notes when and as the same becomes due and payable at maturity, redemption, by acceleration, or otherwise, including default in the payment of the Offer Price in accordance with Section 4.14 or the Change of Control Purchase Price in accordance with Article XI; (c) default in the observance or performance of, or breach of, any covenant, agreement or warranty of the Company or any of its Subsidiaries contained in the Notes or this Indenture, and continuance of such default or breach for the period and after the notice, if any, specified below; (d) a default which extends beyond any stated period of grace applicable thereto, including any extension thereof, under any mortgage, indenture or instrument under which there is outstanding any Debt of the Company or any of its Subsidiaries with an aggregate principal amount in excess of $20,000,000, 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; (e) a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging the Company or any of its Subsidiaries as bankrupt or insolvent, or ordering relief against the Company or any of its Subsidiaries in response to the commencement of an involuntary bankruptcy case, or approving as properly filed a petition seeking reorganization or liquidation of the Company or any of its Subsidiaries under any bankrupt cy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction over the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of the Company, any of its Subsidiaries, or of the property of any such Person, or for the winding up or liquidation of the affairs of any such Person, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of 60 days; (f) the Company or any of its Subsidiaries shall institute voluntary bankruptcy proceedings, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or liquidation under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit 50 57 of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall, within the meaning of any Bankruptcy Law, become insolvent, fail generally to pay its debts as they become due, or take any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; (g) final judgments not covered by insurance for the payment of money, or the issuance of any warrant of attachment against any portion of the property or assets of the Company or any Subsidiary, which, in the aggregate, equal or exceed $25,000,000 at any one time shall be entered against the Company or any of its Subsidiaries by a court of competent jurisdiction and not be stayed, bonded or discharged for a period (during which execution shall not be effectively stayed) of 60 days (or, in the case of any such final judgment which provides for payment over time, which shall so remain unstayed, unbonded or undischarged beyond any applicable payment date provided therein); or (h) 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 this Indenture) or any Guarantor shall deny or disaffirm its obligations with respect thereto. 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 the Change of Control Purchase Price as required by this 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. A Default under clause (c) above (other than in the case of any Defaults under Sections 4.3, 4.11, 4.14, or 5.1, which Defaults shall be Events of Default without the notice specified in this paragraph or Section 4.7(c) and upon the passage of 10 days) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the outstanding Notes notify the Company and the Trustee of the Default, and the Company does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in principal amount of the Notes then outstanding. In the case of any Event of Default pursuant to the provisions of this Section 6.1 occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Subsidiary with the intention of avoiding the period of time the Notes are not optionally redeemable or the payment of the premium which the Company would have to pay if the Company then had elected to redeem the Notes pursuant to Paragraph 5 of the Notes, an equivalent premium (or, in the case of an Event of Default prior to the time optional redemptions are permitted, to the extent permitted by law, a premium equal to the stated interest rate of the Notes multiplied by the quotient of (i) the number of full years left to maturity plus one, divided by (ii) seven) shall also become and be immediately due and payable to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. Section 6.2 Acceleration of Maturity Date; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 6.1(e) or (f) relating to the Company or its Subsidiaries) occurs and is continuing, then, and in every such case, unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate Value of then outstanding Notes, by a notice in writing to the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the principal of the Notes (or the Change of Control Purchase Price if the Event of Default includes failure to pay the Change of Control Purchase Price), determined as set forth below, including in each case accrued 51 58 interest thereon, to be due and payable immediately. If an Event of Default specified in Section 6.1(e) or (f) relating to the Company or its Subsidiaries occurs, all principal and accrued interest on the Notes shall be immediately due and payable on all outstanding Notes without any declaration or other act on the part of the Trustee or the Holders. At any time after such a declaration of acceleration being made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article VI, the Holders of a majority in aggregate Value of then outstanding Notes, by written notice to the Company and the Trustee, may waive, on behalf of all Holders, any such declaration of acceleration if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (1) all accrued but unpaid interest on all Notes, (2) the principal of (and premium, if any, applicable to) any Notes which would become due otherwise than by such declaration of acceleration, and accrued but unpaid interest thereon at the rate borne by the Notes, (3) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes, (4) all sums paid or advanced by the Trustee hereunder and the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and (b) all Events of Default, other than the non-payment of the principal of, premium, if any, and interest on Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.12, including, if applicable, any Event of Default relating to the covenants contained in Section 11.1. Notwithstanding the previous sentence of this Section 6.2, no waiver shall be effective for any Event of Default or event which with notice or lapse of time or both would be an Event of Default with respect to any covenant or provision which cannot be modified or amended without the consent of (x) 662/3% in aggregate Value of the Notes or (y) the affected Holder of each of the outstanding Notes, unless (x) 662/3% in aggregate Value of the Notes or (y) all such affected Holders, respectively, agree, in writing, to waive such Event of Default or event. No such waiver shall cure or waive any subsequent default or impair any right consequent thereon. Section 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if an Event of Default in payment of principal, premium or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal, premium (if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including compensation to, and expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts within 10 days of such demand, the Trustee, in its own name and as trustee of an express trust in favor of the Holders, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be 52 59 payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. The Trustee shall also be authorized to take whatever additional action at law or in equity may appear to be necessary or desirable to collect the monies necessary to pay the principal, premium (if any) and interest on the Notes. Section 6.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company or any obligor for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise to take any and all actions under the TIA, including (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any debtor-in-possession or Custodian or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment, or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.5 Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust in favor of the Holders, and any recovery of judgment shall, after provision for the payment of compensation to, and expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. 53 60 Section 6.6 Priorities. Any money collected by the Trustee pursuant to this Article VI shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium (if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the Trustee in payment of all amounts due pursuant to Section 7.7; SECOND: To the Holders in payment of the amounts then due and unpaid for principal of, premium (if any) and interest on, the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium (if any) and interest respectively; and THIRD: To whomsoever may be lawfully entitled thereto, the remainder, if any. Section 6.7 Limitation on Suits. No Holder of any Note shall have any right to order or direct the Trustee to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of then outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred or reasonably probable to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. Section 6.8 Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision of this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of, and premium (if any) and interest on, such Note on the Maturity Dates of such payments as expressed in such Note and to institute suit for the enforcement of any such payment after such respective dates, and such rights shall not be impaired without the consent of such Holder. Section 6.9 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.7, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every 54 61 other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.10 Delay or Omission Not Waiver. No delay or omission by the Trustee or by any Holder of any Note to exercise any right or remedy arising upon any Event of Default shall impair the exercise of any such right or remedy or constitute a waiver of any such Event of Default. Every right and remedy given by this Article VI or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 6.11 Control by Holders. The Holder or Holders of a majority in aggregate Value of then outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders not taking part in such direction or that such action may involve the Trustee in personal liability, and (c) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.12 Waiver of Past Default. Subject to Section 6.8, the Holder or Holders of not less than a majority in aggregate Value of the outstanding Notes may, on behalf of all Holders, prior to the declaration of the maturity of the Notes, waive any past default hereunder and its consequences, except a default (a) in the payment of the principal of, premium, if any, or interest on, any Note as specified in clauses (a) and (b) of Section 6.1, or (b) in respect of a covenant or provision hereof which, under Article IX, cannot be modified or amended without the consent of the Holder of each outstanding Note affected or 662/3% in aggregate Value of the Notes at the time outstanding, as the case may be; provided that such a default may be waived by the consent of Holders of each outstanding Note affected or 662/3% in aggregate value of the Notes outstanding, as the case may be. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair the exercise of any right arising therefrom. Section 6.13 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted to be taken by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the outstanding Notes, or to any suit instituted by any Holder for enforcement of the payment of principal of, or premium (if any) or interest on, any 55 62 Note on or after the respective Maturity Date expressed in such Note (including, in the case of redemption, on or after the Redemption Date). Section 6.14 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Section 7.1 Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no others, and no covenants or obligations shall be implied in or read into this Indenture which are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.2 or Section 6.11. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action 56 63 under this Indenture or at the request, order or direction of the Holders or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. (g) The Trustee shall execute and deliver the Intercreditor Agreements and any Subordination Agreements as provided in Section 12.2. Section 7.2 Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (g) Whenever by the terms of this Indenture, the Trustee shall be required to transmit notices or reports to any or all Holders, the Trustee shall be entitled to rely on the information provided by the Registrar as to the names and addresses of the Holders as being correct. If the Registrar is other than the Trustee, the Trustee shall not be responsible for the accuracy of such information. Section 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries, or their respective 57 64 Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for (i) the use or application of any funds received by a Paying Agent other than the Trustee, (ii) any statement in the Notes, other than the Trustee's certificate of authentication or (iii) the sufficiency of the collateral for the Notes. The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Company hereunder or in any Security Documents, except as specifically set forth herein or therein. Section 7.5 Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee pursuant to Section 4.7(c), the Trustee shall mail to each Noteholder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal (or premium, if any,) of, or interest on, any Note (including all payments due on any Maturity Date), the Trustee may withhold the notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6 Reports by Trustee to Holders. Within 60 days after each [May 15] beginning with the May 15 following the date of this Indenture, the Trustee shall, if required, mail to each Noteholder a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b) and 313(c). A copy of each report at the time of its mailing to Noteholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Notes are listed. Section 7.7 Compensation and Indemnity. The Company shall pay to the Trustee from time to time compensation for its services (in whatever capacity rendered) in accordance with the Trustee's fee schedule, as may be amended from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and counsel. The Company shall indemnify the Trustee (in its capacity as Trustee) and each of its officers, directors, attorneys-in-fact and agents for, and hold it harmless against, any claim, demand, expense (including but not limited to, compensation, disbursements and expenses of the Trustees' agents and counsel), loss or liability incurred by it without negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall provide reasonable cooperation at the Company's expense in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest as reasonably determined by the Trustee between the Company and the Trustee in connection with such defense. The Company need not pay for any settlement made without its written consent, which shall not be unreasonably withheld. The Company need not 58 65 reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Notes on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal (and premium, if any,) or interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(e) or (f) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The Company's obligations under this Section 7.7 and any lien arising hereunder shall survive the resignation or removal of the Trustee, the discharge of the Company's obligations pursuant to Article VIII and any rejection or termination of this Indenture under any Bankruptcy Law. Section 7.8 Replacement of Trustee. The Trustee may resign by so notifying the Company in writing. The Holder or Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee in writing and may appoint a successor trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver, Custodian, or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holder or Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that and provided that all sums owing to the Trustee provided for in Section 7.7 have been paid, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holder or Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 59 66 Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a)(1), (a)(2) and (a)(5). The Trustee shall comply with TIA ss. 310(b). Section 7.11 Preferential Collection of Claims against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. Section 7.12 No Bond. The Trustee shall not be required to give any bond or surety in respect to the execution of its trusts, powers, rights and duties under this Indenture or otherwise in respect of the premises. Section 7.13 Condition to Action. Notwithstanding anything elsewhere in this Indenture to the contrary, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Notes or any other action within the purview of this Indenture, any showings, certificates, opinions, or other information, or corporate action or evidence thereof in addition to that by the terms hereof required, as a condition of such action by the Trustee if reasonably deemed desirable by the Trustee for the purpose of establishing the right to the authentication of any Notes or the taking of any other action by the Trustee. Section 7.14 Investment. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it at the direction of the Company. ARTICLE VIII SATISFACTION AND DISCHARGE Section 8.1 Satisfaction, Discharge of the Indenture and Defeasance of the Notes. The Company shall be deemed to have paid and discharged the entire Debt on the Notes and the provisions of this Indenture shall cease to be of further effect (subject to Sections 8.3 and 8.7), if: (a) The Company irrevocably deposits in trust for the benefit of the Holders of the Notes with the Trust ee, pursuant to an irrevocable trust agreement in form and substance reasonably satisfactory to the Trustee, (i) U.S. Legal Tender, (ii) U.S. Government Obligations or (iii) a combination thereof which, after payment of all Federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, through the payment of principal and interest will provide, not later than one day before the due date of payment in respect of the Notes, U.S. Legal Tender in an amount which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof (in form and substance reasonably satisfactory to the Trustee) delivered to the Trustee, is sufficient to pay the principal of, premium, if any, and each installment of principal and interest on the Notes then outstanding, on the 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; 60 67 (b) Such deposits shall not cause the Trustee to have a conflicting interest as defined in and for purposes of the TIA; (c) No Default or Event of Default relating to clauses (e) or (f) of Section 6.1 shall have occurred or be continuing on the date of such deposit or shall occur on or before the 91st day (or one day after such greater period of time in which any such deposit of trust funds may remain subject to set aside or avoidance under bankruptcy or insolvency laws) after the date of such deposit, and such deposit will not result in a Default or Event of Default under this Indenture or a breach or violation of, or constitute a default under, any other instrument to which the Company or any Subsidiary of the Company is a party or by which it or its property is bound; (d) The deposit, defeasance and discharge will not be deemed, or result in, a Federal income taxable event to the Holders of the Notes and the Holders will be subject to Federal income tax in the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (e) The deposit shall not result in the Company, the Trustee or the trust being subject to regulation under the Investment Company Act of 1940; (f) After the passage of 90 days (or any greater period of time in which any such deposit of trust funds may remain subject to set aside or avoidance under Bankruptcy Laws insofar as those laws apply to the Company) following the irrevocable deposit of the trust funds, such funds will not be subject to any set aside or avoidance under Bankruptcy Laws affecting creditors' rights generally; and (g) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (who may be outside counsel to the Company, but not in-house counsel to the Company), each in form and substance satisfactory to the Trustee, stating that all conditions precedent specified herein relating to the defeasance contemplated by this Section 8.1 have been complied with. In the event all or any portion of the Notes are to be redeemed through such irrevocable trust, the Company must make arrangements satisfactory to the Trustee, at the time of such deposit, for the giving of the notice of such redemption or redemptions by the Trustee in the name and at the expense of the Company. In the event that the Company takes the necessary action to comply with the provisions described in this Section 8.1 and the Notes are declared due and payable because of the occurrence of an Event of Default within the time period specified in Section 8.1(c), or at any time under Section 8.3, the Company will remain liable for all amounts due on the Notes at the time of acceleration resulting from such Event of Default in excess of the amount of U.S. Legal Tender and U.S. Government Obligations deposited with the Trustee pursuant to this Section 8.1 at the time of such acceleration. Section 8.2 Termination of Obligations Upon Cancellation of the Notes. In addition to the Company's rights under Section 8.1, the Company may terminate all of its respective obligations under this Indenture (subject to Sections 8.3 and 8.7) when: (a) all Notes theretofore authenticated and delivered (other than Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.7) have been delivered to the Trustee for cancellation; (b) the Company has paid or caused to be paid all sums payable hereunder by the Company; and 61 68 (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with. Section 8.3 Survival of Certain Obligations. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes referred to in Section 8.1 or 8.2, the respective obligations of the Company and the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.11, 2.12, Article III, 4.1, 4.2, 4.4, 6.8, 7.7, 7.8, 8.5, 8.6, 8.7 and this Section 8.3 shall survive until the Notes are no longer outstanding, and thereafter the obligations of the Company and the Trustee under Sections 6.8, 7.7, 7.8, 8.5, 8.6, 8.7 and this Section 8.3 shall survive. Nothing contained in this Article VIII shall abrogate any of the obligations or duties of the Trustee under this Indenture. Section 8.4 Acknowledgment of Discharge by Trustee. After (i) the conditions of Section 8.1 or 8.2 have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i), above, relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon request shall acknowledge in writing the discharge the Company's obligations under this Indenture except for those surviving obligations specified in Section 8.3. Section 8.5 Application of Trust Assets. The Trustee shall hold any U.S. Legal Tender or U.S. Government Obligations deposited with it in the irrevocable trust established pursuant to Section 8.1. The Trustee shall apply the deposited U.S. Legal Tender or U.S. Government Obligations, together with earnings thereon, through the Paying Agent (other than the Company or any Subsidiary of the Company), in accordance with this Indenture and the terms of the irrevocable trust agreement, to the payment of principal of and interest on the Notes. Section 8.6 Repayment to the Company. Upon termination of the trust established pursuant to Section 8.1, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them. The Trustee and the Paying Agent shall pay to the Company upon request, and, if applicable, in accordance with the irrevocable trust established pursuant to Section 8.1, any U.S. Legal Tender or U.S. Government Obligations held by them for the payment of principal of or interest on the Notes that remain unclaimed for two years after the date on which such payment shall have become due; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once, in a newspaper customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. After payment to the Company, Holders entitled to such payment must look to the Company for such payment as general creditors unless an applicable abandoned property law designates another Person. Section 8.7 Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture, the Security Documents and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 or 8.2 until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2; provided, however, that if the Company has made any payment of principal of or interest on any Notes because of the reinstatement of its obligations, the Company shall be surrogated to the 62 69 rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Supplemental Indentures Without Consent of Holders. Without the consent of any Holder, the Company 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 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; or (d) to comply with the TIA. Section 9.2 Amendments, Supplemental Indentures and Waivers with Consent of Holders. Subject to Section 6.8, with the consent of the Holders of not less than a majority in aggregate Value of then outstanding Notes, by written act of said Holders (including an electronic mechanism utilized by the Depository Trust Company as a means of receiving consents or tenders of securities) delivered to the Company and the Trustee, the Company, when authorized by Board Resolutions, and the Trustee may amend or supplement this Indenture, the Notes or enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or the Notes or of modifying in any manner the rights of the Holders under this Indenture or the Notes; provided, that no such modification may, without the consent of the Holders of not less than 662/3 in aggregate Value of the Notes at the time outstanding, (i) prior to a Change of Control, reduce the Change of Control Purchase Price or alter the provisions of Article XI or (ii) prior to the date upon which an Offer to Purchase is required to be made, reduce the Offer Price or alter the provisions of Section 4.14 in a manner adverse to the Holders. Subject to Section 6.8, the Holder or Holders of not less than a majority, in aggregate Value of then outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes; provided, that no such waiver may, without the consent of the Holders of not less than 662/3 in aggregate Value of the Notes at the time outstanding, have the effect of (i) prior to a Change of Control, reducing the Change of Control Purchase Price or altering the provisions of Article XI or (ii) prior to the date upon which an Offer to Purchase is required to be made, reduce the Offer Price or alter the provisions of Section 4.14 in a manner adverse to the Holders. Notwithstanding any of the above, however, no 63 70 such amendment, supplemental indenture or waiver shall, without the consent of the Holder of each outstanding Note affected thereby: (a) reduce the percentage of Value of Notes whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Notes; (b) reduce the rate or extend the time for payment of interest on any Note; (c) (i) reduce the principal amount of any Note or (ii) after the date upon which a Change of Control Offer is required to be made, reduce the Change of Control Purchase Price or (iii) after the date upon which an Offer to Purchase is required to be made, reduce the to Purchase Offer Price or (iv) reduce the Redemption Price; (d) change the Stated Maturity or the payment date of any installment of principal of, or the payment date of any installment of interest on, any Note; (e) (i) alter the redemption provisions of Article III or of paragraph 5 of the Notes or (ii) after the date upon which a Change of Control Offer is required to be made, alter the terms or provisions of Article XI; (f) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders of the Notes (except to increase any required percentage or to provide that certain other provisions hereof cannot be modified or waived without the consent of the Holders of each outstanding Note affected thereby) or the rights of Holders to recover the principal or premium of, interest on, or redemption payment with respect to, any Note; (g) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or (h) make the principal of, or the interest on, any Note payable with anything or in any manner other than as provided for in this Indenture (including changing the place of payment where, or the coin or currency in which, any Note or any premium or the interest thereon is payable) and the Notes as in effect on the date hereof. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. After an amendment, supplement or waiver under this Section 9.2 or 9.4 becomes effective, it shall bind each Holder. In connection with any amendment, supplement or waiver under this Article IX, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Section 9.3 Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. 64 71 Section 9.4 Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to his Note or portion of his Note by written notice to the Company or the Person designated by the Company as the Person to whom consents should be sent if such revocation is received by the Company or such Person before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be the date so fixed by the Company notwithstanding the provisions of the TIA. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date, and only those Persons (or their duly designated proxies), shall be entitled to revoke any consent previously given, regardless of whether such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Noteholder; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal and premium of and interest on a Note, on or after the respective dates set for such amounts to become due and payable expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates. Section 9.5 Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee or require the Holder to put an appropriate notation on the Note. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment, supplement or waiver. Section 9.6 Trustee to Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article IX, provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee 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 or waiver authorized pursuant to this Article IX is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF NOTEHOLDERS Section 10.1 Purposes for Which Meetings May Be Called. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes: (a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VI; 65 72 (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article VII; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holder or Holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. Section 10.2 Manner of Calling Meetings. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place in the City of New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Noteholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to the Company and to the Holders at their last addresses as they shall appear on the registration books of the Registrar, not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Noteholders shall be valid without notice if the Holders of all Notes then outstanding are present in Person or by proxy, or if notice is waived before or after the meeting by the Holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3 Call of Meetings by Company or Holders. In case at any time the Company, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or the Holders of Notes in the amount above specified may determine the time and place in the City of New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of a general circulation in the City of New York, State of New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. Section 10.4 Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Noteholders, a Person shall (a) be a registered Holder of one or more Notes, or (b) be a Person appointed by an instrument in writing as proxy for the registered Holder or Holders of Notes. The only Persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. 66 73 Section 10.5 Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Notes entitled to vote at such meeting, in which case those and only those Persons who are Holders of Notes at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting regardless of whether they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote. At any meeting each Noteholder or proxy shall be entitled to one vote for each $1,000 Value of Notes held or represented by him; provided, however that no vote shall be cast or counted at any meeting in respect of any Notes challenged as not outstanding and ruled by the chairman of the meeting to be not then outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holder or Holders of a majority in aggregate Value of the Notes represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting at the Meeting and Record to Be Kept. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballots on which shall be subscribed the signatures of the Holders of Notes or of their representatives by proxy and the principal amount of the Notes voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article X shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. 67 74 ARTICLE XI RIGHT TO REQUIRE REPURCHASE Section 11.1 Repurchase of Notes at Option of the Holder Upon Change of Control. (a) In the event that a Change of Control occurs, each Holder of Notes shall have the right, at such Holder's option, upon the terms and conditions of this Article XI, to require the Company to repurchase all or any part of such Holder's Notes (provided that the principal amount of such Notes at maturity must be $1,000 or an integral multiple thereof) on a date that is no later than 60 Business Days after the occurrence of a Change of Control (the date on which the repurchase is effected being referred to herein as the "Change of Control Payment Date"), at a cash purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, on and including the Change of Control Payment Date. (b) Within 20 Business Days after the Company knows, or reasonably should know, of the occurrence of a Change of Control, the Company shall make an irrevocable unconditional offer (a "Change of Control Offer") to the Holders to purchase for U.S. Legal Tender all of the Notes pursuant to the offer described in clause (c) of this Section 11.1 at the Change of Control Purchase Price. Within five Business Days after each date upon which the Company knows, or reasonably should know, of the occurrence of a Change of Control requiring the Company to make a Change of Control Offer pursuant to this Section 11.1, the Company shall so notify the Trustee. (c) Notice of a Change of Control Offer shall be sent, at least 20 Business Days prior to the Final Change of Control Put Date (as defined below), by first class mail, by the Company to each Holder at its registered address, with a copy to the Trustee. The notice to the Holders shall contain all instructions and materials required by applicable law and shall contain or make available to Holders other information material to such Holders' decision to tender Notes pursuant to the Change of Control Offer. The notice, which shall govern the terms of the Offer, shall state: (1) that the Change of Control Offer is being made pursuant to such notice and this Section 11.1 and that all Notes, or portions thereof, tendered will be accepted for payment; (2) the Change of Control Purchase Price, the Change of Control Payment Date and the Final Change of Control Put Date (as defined below); (3) that any Note, or portion thereof, not tendered or accepted for payment will continue to accrue interest, if interest is then accruing; (4) that, unless the Company defaults in depositing U.S. Legal Tender with the Paying Agent in accor dance with the last paragraph of this clause (c), or payment is otherwise prevented, any Note, or portion thereof, accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Note, or portion thereof, purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent (which may not for purposes of this Section 11.1, notwithstanding anything in this Indenture to the contrary, be the Company or any Affiliate of the Company) at 68 75 the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date (the "Final Change of Control Put Date"); (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, prior to the close of business on the Final Change of Control Put Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder is withdrawing and a statement containing a facsimile signature that such Holder is withdrawing his election to have such principal amount of Notes purchased; (7) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; and (8) a brief description of the events resulting in such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer prior to the close of business on the Final Change of Control Put Date, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Change of Control Purchase Price (including accrued and unpaid interest) of all Notes so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate listing the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the Change of Control Purchase Price (including accrued and unpaid interest), and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note equal in principal amount, to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Any such Change of Control Offer shall comply with all applicable provisions of Federal and state laws, rules and regulations, including those regulating tender offers, if applicable, and, if such laws, rules or regulations require or prohibit any action inconsistent with the foregoing, compliance by the Company with such laws, rules and regulations will not constitute a breach of the Company's obligations with respect to the foregoing. ARTICLE XII SUBORDINATION Section 12.1 Notes Subordinated to Senior Indebtedness. The Company and each Holder, by its acceptance of Notes, agree that (a) the payment of the principal of and interest on the Notes and (b) any other payment in respect of the Notes, including on account of the acquisition or redemption of the Notes by the Company (including, without limitation, pursuant to Article XI) is subordinated, to the extent and in the manner provided in this Article XII, to the prior payment in full of all Senior Debt of the Company, whether outstanding at the date of this Indenture or thereafter created, incurred, assumed or guaranteed, and that these subordination provisions are for the benefit of the holders of Senior Debt. This Article XII shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Debt, and such provisions are made for the benefit of the holders of Senior Debt, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. 69 76 Section 12.2 No Payment on Securities in Certain Circumstances. (a) 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 (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. (b) 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 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 agreement 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. (c) In the event that, notwithstanding 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. Section 12.3 Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization. 70 77 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 marshalling of assets or liabilities, (i) the holders of all Senior Debt of the Company or such Guarantor, as applicable, will first be entitled to receive payment in full in cash or Cash Equivalents or otherwise to the extent holders accept satisfaction of amounts due by settlement in other than cash or Cash Equivalents (or have such payment duly provided for) before the Holders are entitled to receive any payment on account of any Obligation in respect of the Notes, including the principal of, premium, if any, and interest on the Notes (or liquidated damages pursuant to the registration rights agreement relating to the Notes) (other than Junior Securities) and (ii) any payment or distribution of assets of the Company or such Guarantor of any kind or character from any source, whether in cash, property or securities (other than Junior Securities) to which the Holders or the Trustee on behalf of the Holders would be entitled (by set-off or otherwise) but for the subordination provisions contained in the Indenture, will be paid by the liquidating trustee or agent or other person 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. Section 12.4 Securityholders to Be Subrogated to Rights of Holders of Senior Debt. Subject to the payment in full of all Senior Debt of the Company as provided herein, the Holders of Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until all amounts owing on the Notes shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of such Senior Debt by the Company, or by or on behalf of the Holders by virtue of this Article XII, which otherwise would have been made to the Holders shall, as between the Company and the Holders, be deemed to be payment by the Company or on account of such Senior Debt, it being understood that the provisions of this Article XII are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Senior Debt, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article XII shall have been applied, pursuant to the provisions of this Article XII, to the payment of amounts payable under Senior Debt of the Company, then the Holders shall be entitled to receive from the holders of such Senior Debt any payments or distributions received by such holders of Senior Debt in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Debt in full. Section 12.5 Obligations of the Company Unconditional. Nothing contained in this Article XII or elsewhere in this Indenture or in the Notes is intended to or shall impair as between the Company and the Holders, the obligation of each such Person, which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, interest on, and Liquidated Damages with respect to, the notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XII, of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Notwithstanding anything to the contrary in this Article XII or elsewhere in this Indenture or in the Notes, upon any distribution of assets of the Company referred to in this Article XII, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order 71 78 or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII so long as such court has been apprised of the provisions of, or the order, decree or certificate makes reference to, the provisions of this Article XII. Nothing in this Section 12.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. Section 12.6 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent shall have received, no later than one Business Day prior to such payment, written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 12.7 Application by Trustee of Assets Deposited with It. Amounts deposited in trust with the Trustee pursuant to and in accordance with Article VIII shall be for the sole benefit of the Holders of the Notes and, to the extent allocated for the payment of Notes, shall not be subject to the subordination provisions of this Article XII. Otherwise, any deposit of assets with the Trustee or the Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; provided that, if prior to one Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 12.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. Section 12.8 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. No right of any present or future holders of any Senior Debt to enforce subordination provisions contained in this Article XII shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Debt may extend, renew, modify or amend the terms of the Senior Debt or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. 72 79 Section 12.9 Holders of Notes Authorize Trustee to Effectuate Subordination of Securities. Each Holder of the Notes by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provisions contained in this Article XII and to protect the rights of the Holders pursuant to this Indenture, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors of the Company), the immediate filing of a claim for the unpaid balance of his Notes in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or their representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or their representative to authorize or consent to or accept or adopt on behalf of any Holder of Notes any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or their representative to vote in respect of the claim of any Holder of Note in any such proceeding. Section 12.10 Right of Trustee to Hold Senior Debt. The Trustee shall be entitled to all of the rights set forth in this Article XII in respect of any Senior Debt at any time held by it to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Section 12.11 Article XII Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, interest on, or Liquidated Damages with respect to, the Notes by reason of any provision of this Article XII shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1 or in any way prevent the Holders from exercising any right hereunder other than the right to receive payment on the Notes. Section 12.12 No Fiduciary Duty of Trustee to Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders (other than for its willful misconduct or negligence) if it shall in good faith mistakenly pay over or distribute to the Holders of Securities or the Company or any other Person, cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article XII or otherwise. Noth ing in this Section 12.12 shall affect the obligation of any other such Person to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Debt or their representative. ARTICLE XIII MISCELLANEOUS Section 13.1 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of the TIA, the imposed duties, upon qualification of this Indenture under the TIA, shall control. 73 80 Section 13.2 Notices. Any notices or other communications to the Company or the Trustee required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East, Suite 320 Houston, Texas 77032 Attention: Edwin B. Donahue if to the Trustee: First Union National Bank Corporate Trust Department 10 State House Square CT 5845 Hartford, CT 06103-3698 Attention: W. Jeffry Kramer The Company or the Trustee by notice to each other party may designate additional or different addresses as shall be furnished in writing by such party. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered, if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five Business Days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, regardless of whether the addressee receives it. Section 13.3 Communications by Holders with Other Holders. Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA ss. 312(c). Section 13.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (in form and substance reasonably satisfactory to the Trustee) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (in form and substance reasonably satisfactory to the Trustee) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 74 81 Section 13.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to regardless of whether such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Noteholders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions at such place are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 13.8 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH 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. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE NOTES AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY NOTEHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. Section 13.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 75 82 Section 13.10 No Recourse against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or any of its Subsidiaries shall not have any liability for any obligations of the Company or such Subsidiary under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Noteholder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. Section 13.11 Successors. All agreements of the Company in this Indenture and the Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.12 Duplicate Originals. All parties may sign any number of copies or counterparts of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent the same agreement. Section 13.13 Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. Section 13.14 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and the Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 76 83 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: ----------------------------------- Name: Title: [Seal] Attest: ----------------------------------- FIRST UNION NATIONAL BANK as Trustee By: ----------------------------------- Name: Title: 84 EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Unit Exhibit C - Certificate of Transferor 85 EXHIBIT A (FACE OF NOTE) [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. - -------- 1 This paragraph should be included only if the Note is issued in global form. A-1 86 [FORM OF NOTE] TRANSAMERICAN REFINING CORPORATION 16% SENIOR SUBORDINATED NOTE DUE 2003 No. $ [THIS NOTE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") WITHIN THE MEANING OF SECTION 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE DATE OF THIS NOTE IS DECEMBER 30, 1997. THE ISSUE PRICE PER $1000.00 OF STATED PRINCIPAL AMOUNT OF THIS NOTE WILL BE $953.2951. THE ISSUE PRICE OF THIS NOTE REPRESENTS A YIELD TO MATURITY OF 17.35% PER ANNUM COMPUTED ON A SEMI-ANNUAL BOND EQUIVALENT BASIS AND CALCULATED FROM DECEMBER 30, 1997. THE AMOUNT OF OID PER $1000.00 OF STATED PRINCIPAL AMOUNT OF ON THIS NOTE WILL BE $46.7049. CUSIP [ ] TransAmerican Refining Corporation, a Texas corporation (hereinafter called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________, or registered assigns, the principal sum of ________________ Dollars, on June 30, 2003. Interest Payment Dates: June 30 and December 30, commencing June 30, 1998 Record Dates: June 15 and December 15 Reference is made to the further provisions of this Note on the reverse side, which will, for all purposes, have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Dated: TRANSAMERICAN REFINING CORPORATION By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: A-2 87 Trustee's Certificate of Authentication: This is one of the Notes referred to in the within-mentioned Indenture: First Union National Bank By: ----------------------------------- Authorized Signature A-3 88 (BACK OF NOTE) TRANSAMERICAN REFINING CORPORATION 16% SENIOR SUBORDINATED NOTE DUE 2003 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 a rate of 18% per annum compounded semi-annually. The Company will pay interest semi-annually on June 30 and December 30 of each year (each, an "Inter est Payment Date"), commencing June 30, 1998. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Notes. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Except as provided below, the Company shall pay principal and interest in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company shall deliver any such interest payment to the Paying Agent who shall remit such payment to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, First Union National Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or an Affiliate of it may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture, dated as of December 30, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are senior subordinated obligations of the Company limited in aggregate principal amount to an amount that yields proceeds to the Company of $200,000,000. A-4 89 5. Optional Redemption. The Notes may be redeemed in whole or from time to time in part at any time at the option of the Company, at the Redemption Price (expressed as a percentage of principal amount) set forth below with respect to the indicated Redemption Date, in each case, together with any accrued but unpaid interest to the Redemption Date.
If redeemed during the period indicated below Redemption Price --------------- ---------------- December 30, 1997 - June 29, 2000.................. 116.00% June 30, 2000 - June 29, 2001...................... 110.67% June 30, 2001 - June 29, 2002...................... 105.33% June 30, 2002 - and thereafter..................... 100.00%
Any such redemption will comply with Article III of the Indenture. 6. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 15 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent on such Redemption Date the Notes called for redemption will cease to bear interest and the only right of the Holders of such Notes will be to receive payment of the Redemption Price and any accrued and unpaid interest to the Redemption Date. 7. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of, or exchange Notes in accordance with, the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as the owner of it for all purposes. 9. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money back to the Company at its written request. Thereafter, all liability of the Trustee and such Paying Agent(s) with respect to such money shall cease. A-5 90 10. Discharge Prior to Redemption or Maturity. If the Company at any time deposits into an irrevocable trust with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Notes). 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the writ ten consent of the Holders of at least a majority in aggregate Value of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate Value of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency (provided such amendment or supplement does not adversely affect the rights of any Holder of a Note). 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, Incur additional Debt or issue Disqualified Capital Stock, make payments in respect of its Capital Stock, enter into transactions with Related Persons, incur Liens, sell assets, change the nature of its business, merge or consolidate with any other Person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must deliver a quarterly report to the Trustee on compliance with such limitations. 13. Change of Control. In the event there shall occur any Change of Control, each Holder of Notes shall have the right, at such Holder's option but subject to the limitations and conditions set forth in the Indenture, to require the Company to purchase on the Change of Control Payment Date in the manner specified in the Indenture, all or any part (in integral multiples of $1,000) of such Holder's Notes at a Change of Control Purchase Price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, on and including the Change of Control Payment Date. 14. Successors. When a successor assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 15. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate combined Value of the Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate Value of the Notes then A-6 91 outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal, premium, if any, or interest, including a Default at any Maturity Date), if it determines that withholding notice is in their interest. 16. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, past, present or future, of the Company or any of its Subsidiaries or any successor corporation shall have any liability for any obligation of the Company or such Subsidiary under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 18. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture. 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of December 30, 1997, among the Company and the Jefferies & Company, Inc. (the "Registration Rights Agreement"), including but not limited to the obligations of the Holders with respect to a registration and the indemnification of the Company and the Purchasers (as defined therein) to the extent provided therein. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: TransAmerican Refining Corporation, 1300 North Sam Houston Parkway East, Suite 320, Houston, Texas 77032. 21. Ranking. Payment of principal, premium, if any, interest on and Liquidated Damages with respect to the Notes is subordinated, to the extent set forth in the Indenture, to the prior payment of all Senior Debt. A-7 92 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Signature ------------------------- ---------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - ---------------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). A-8 93 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, check the appropriate box below: [ ] Section 4.14 [ ] Article XI If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, as the case may be, state the principal amount (in integral multiples of $1,000) you want to be purchased: $_____________ Date: Signature --------------------- ----------------------------------- (Sign exactly as your name appears on the face of this Note) Your Social Security or Tax Identification Number: ------------------------- Signature Guarantee:* - ------------------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). A-9 94 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES2 The following exchanges of a part of this Global Note for Definitive Notes have been made:
Amount of decrease Amount of increase Principal Amount Signature of in Principal Amount in Principal Amount of this Global Note authorized signatory Date of Exchange of this Global Note of this Global Note decrease (or increase) of Trustee - ----------------------------------------------------------------------------------------------------------------
- --------------------- 2 This should be included only if the Note is issued in global form. A-10 95 EXHIBIT B [Form of Unit] TRANSAMERICA REFINING CORPORATION UNITS CONSISTING OF 16% SENIOR SUBORDINATED NOTES DUE 2003 AND COMMON STOCK PURCHASE WARRANTS No. Units CUSIP [ ] Each Unit consists of $1,000 principal amount of 16% Senior Subordinated Notes due 2003 of TransAmerica Refining Corporation, a Texas corporation (hereinafter called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to) and one Warrant to purchase 13.344257 shares of Common Stock, par value $0.01 per share, of the Company for $0.01 per share (subject to adjustment) at any time before 5:00 p.m., New York City time, on June 30, 2003 (the "Expiration Date"). The Notes and the Warrants are not separately transferable until the earlier of (i) one year after the issuance of the Units, (ii) commencement of the Exchange Offer (as defined in the Indenture) and (iii) such other date as determined by Jefferies & Company, Inc. The terms of the Warrants are governed by a Warrant Agreement dated as of December 30, 1997 (the "Warrant Agreement") between the Company and First Union National Bank, as Warrant Agent (the "Warrant Agent"), and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit consents by acceptance hereof. Copies of the Warrant Agreement are on file at the office of the Warrant Agent at First Union National Bank, 10 State House Square CT 5845, Hartford CT 06103-3698, Attention: Corporate Trust Department, and are available to any Warrant holder on written request and without cost. The Warrant shall be void unless exercised before 5:00 p.m. New York City time on the Expiration Date. The Company, for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of ____________ Dollars, on June 30, 2003. Interest Payment Dates: June 30 and December 30, commencing June 30, 1998 Record Dates: June 15 and December 15 Reference is made to the further provisions of the Note evidenced by this Unit on the reverse side, which will, for all purposes, have the same effect as if set forth at this place. B-1 96 IN WITNESS WHEREOF, the Company has caused this Unit to be signed manually or by facsimile by its duly authorized officers.. Dated: TRANSAMERICAN REFINING CORPORATION By: ------------------------------------ Attest: - ------------------------------------ Secretary [Seal] B-2 97 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Unit evidences one of those Notes described in the within-mentioned Indenture. FIRST UNION NATIONAL BANK, as Trustee as Trustee By: ------------------------------------ Authorized Signatory Dated: B-3 98 TRANSAMERICAN REFINING CORPORATION UNITS CONSISTING OF 16% SENIOR SUBORDINATED NOTES DUE 2003 AND COMMON STOCK PURCHASE WARRANTS 1. Interest. TransAmerican Refining Corporation, a Texas corporation (the "Company"), promises to pay interest on the principal amount of the Notes at a rate of 16% per annum (subject to adjustment). To the extent it is lawful, the Company promises to pay interest on any interest payment due but unpaid on such principal amount at a rate of 18% per annum (subject to adjustment) compounded semi-annually. The Company will pay interest semi-annually on June 30 and December 30 of every year (each, an "Interest Payment Date"), commencing June 30, 1998. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Notes. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Except as provided below, the Company shall pay principal and interest in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or the Company may mail any such interest payment to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, First Union National Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or so-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture, dated as of December 30, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA, as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are senior subordinated obligations of the Company limited in aggregate principal amount to an amount that yields proceeds to the Company of $200,000,000. B-4 99 5. Optional Redemption. The Notes may be redeemed in whole or from time to time in part at any time at the option of the Company, at the Redemption Price (expressed as a percentage of the principal amount thereof) set forth below with respect to the indicated Redemption Date, in each case, together with any accrued but unpaid interest to the Redemption Date.
If redeemed during the period indicated below Redemption Price - ---------------------- ---------------- December 30, 1997 - June 29, 2000.................. 116.00% June 30, 2000 - June 29, 2001...................... 110.67% June 30, 2001 - June 29, 2002...................... 105.33% June 30, 2002 and thereafter....................... 100.00%
Any such redemption will comply with Article III of the Indenture. 6. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 15 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $ 1 ,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent on such Redemption Date the Notes called for redemption will cease to bear interest and the only right of the Holders of such Notes will be to receive payment of the Redemption Price and any accrued and unpaid interest to the Redemption Date. 7. Denominations; Transfer: Exchange. The Notes are in registered form, without coupons, in denominations of $l,000 and integral multiples of $1,000. A Holder may register the transfer of, or exchange Notes in accordance with, the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as the owner of it for all purposes. 9. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money back to the Company at its written request. After that, all liability of the Trustee and such Paying Agent(s) with respect to such money shall cease. B-5 100 10. Discharge Prior to Redemption or Maturity. If the Company at any time deposits into an irrevocable trust with the Trustee U.S. legal Tender or Government Securities sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Notes). 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate value of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate value of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency (provided such amendment or supplement does not adversely affect the rights of any Holder of a Note). 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, Incur additional Debt or issue Disqualified Capital Stock, make payments in respect of its Capital Stock, enter into transactions with Related Persons, incur Liens, sell assets, change the nature of its business, merge or consolidate with any other Person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must deliver a quarterly report to the Trustee on compliance with such limitations. 13. Change of Control. In the event there shall occur any Change of Control, each Holder of Notes shall have the right, at such Holder's option but subject to the limitations and conditions set forth in the Indenture, to require the Company to purchase on the Change of Control Payment Date in the manner specified in the Indenture, all or any part (in integral multiples of $1,000) of such Holder's Notes at a Change of Control Purchase Price equal to 101 % of the principal amount thereof, together with accrued and unpaid interest, if any, to the Change of Control Payment Date. 14. Successors. When a successor assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 15. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in aggregate value of the Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate value of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal, premium, if any, or interest, including a Default at any Maturity Date), if it determines that withholding notice is in their interest. B-6 101 16. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, past, present or future, of the Company or any of its Subsidiaries or any successor corporation shall have any liability for any obligation of the Company or such Subsidiary under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. Authentication. The Note evidenced by this Unit shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Unit. 18. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Notes and the Units as a convenience to the holders of the Notes and holders of the Units. No representation is made as to the accuracy of such numbers as printed on the Notes or the Units and reliance may be placed only on the other identification numbers printed thereon and hereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note evidenced by this Unit, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of December 30, 1997, between the Company and Jefferies & Company, Inc. (the "Registration Rights Agreement"), including but not limited to the obligations of the Holders with respect to a registration and the indemnification of the Company and the Purchasers (as defined therein) to the extent provided therein. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: TransAmerican Refining Corporation, 1300 North Sam Houston Parkway East, Suite 320, Houston, Texas 77032. 21. Ranking. Payments of principal, premium, if any, interest on and Liquidated Damages with respect to, the Notes is subordinated, to the extent set forth in the Indenture, to the prior payment of all Senior Debt. B-7 102 TRANSAMERICAN REFININGCORPORATION DEPOSIT OF WARRANTS TO PURCHASE COMMON STOCK OF TRANSAMERICAN REFINING CORPORATION Under the terms of the Warrant Agreement, and until such time as the Holder of this Unit shall have surrendered this Unit to the Warrant Agent for the exchange of this Unit, in whole or in part, for one or more Warrant Certificates (as defined in the Warrant Agreement) and one or more Notes of a like aggregate principal amount and of authorized denominations, the Holder of this Unit is for each Unit evidenced by this certificate, the beneficial owner of 13.344257 Warrants expiring June 30, 2003, entitling the holder thereof initially to purchase 13.344257 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of the Company (subject to adjustment as provided in the Warrant Agreement). The Company has deposited with the Warrant Agent, as custodian for Holders of Units, certificates for such Warrants. Prior to the exchange of this Unit for one or more Warrant Certificates and one or more Notes, beneficial ownership of such Warrants is transferable only by the transfer of this Unit pursuant to the Indenture. After such exchange, ownership of a Warrant is transferable only by the transfer of the certificate representing such Warrant in accordance with the provisions of the Warrant Agreement. By accepting a Unit, each Holder of this Unit shall be bound by all of the terms and provisions of the Warrant Agreement (a copy of which is available on request to the Company or the Warrant Agent) as fully and effectively as if such Holder had signed the same. B-8 103 ELECTION TO EXERCISE WARRANTS The undersigned registered Holder of this Unit hereby irrevocably elects to exercise Warrants (evidenced by Warrant Certificates deposited with the Warrant Agent the beneficial ownership of which is evidenced by this Unit) representing the right to receive ___ shares of Common Stock, and in payment of the Warrant Price (as defined in the Warrant Agreement) the undersigned herewith tenders payment in money of the United States of America or by certified or official bank check in lawful money of the United States of America to the order of TransAmerican Refining Corporation in the amount of $__________. The undersigned requests that a certificate representing the Common Stock issuable upon exercise of such Warrants be registered in the name of __________________________ whose address is ___________________________ and that such certificate be delivered to ________________ whose address is _________________________. All payments to be made in lieu of issuing a fractional share should be made by check payable to __________________________________ whose address is __________________________. The undersigned hereby irrevocably instructs the Warrant Agent (A) to deliver this Note to the Trustee pursuant to the provisions of the Indenture with instructions to issue in the name of the registered Holder a Note in principal amount equal to the principal amount of the Note evidenced by this Unit; (B) to issue in the name of the undersigned registered Holder a Warrant Certificate representing the number of Warrants equal to the difference between (x) the number of Warrants represented by this Unit and (y) the Warrants exercised hereby on behalf of the undersigned registered Holder; and (C) as custodian of the Warrants on behalf of such registered Holder, to cause such Warrants to be exercised on behalf of the undersigned Holder as provided in the Warrant Agreement. Dated: Name of Holder of this Note: ------------------------------------ Address: ---------------------------- Signature: -------------------------- [Note: the above signature must correspond with the name as written upon the face of this Unit in every particular, without alteration or enlargement whatever.] B-9 104 ASSIGNMENT I or we assign this Unit to: -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee: ----------------------------------- and irrevocably appoint agent --------------------- to transfer this Unit on the books of the Company. The agent may substitute another to act for him. Dated: -------------------- Signature: -------------------------------------------- (Sign exactly as name appears on the other side of this Unit) B-10 105 EXCHANGE I or we assign the Note evidenced by this Unit to: TransAmerican Energy Corporation 1300 North Sam Houston Parkway East Suite 320 Houston, Texas 77032 I.R.S. Employer Identification No.: 76-0229632 and irrevocably appoint ______________________ agent to transfer the Note evidenced by this Unit on the books of the Company. The agent may substitute another to act for him. Dated: ----------------------- Signature: ----------------------------------------------------- (Sign exactly as name appears on the other side of this Unit) B-11 106 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have the Note evidenced by this Unit purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, check the appropriate box below: [ ] Section 4.14 [ ] Article XI If you want to elect to have only part of the Note evidenced by this Unit purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, as the case may be, state the amount you want to be purchased: $ ------------ Dated: -------------------- Signature: ------------------------------------ (Sign exactly as your name appears on the other side of this Unit) Your Social Security or Tax Identification Number: ------------------ Signature Guarantee***: --------------------------------------------- - ----------------- ***NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agent Medallion Program (STAMP) (2) The New York Stock Exchange Medallion Program (MSP) (3) The Stock Exchange Medallion Program (SEMP) B-12 107 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: [Series A] [Series B] 16% Senior Subordinated Notes due 2003 (the "Notes") of TransAmerican Refining Corporation This Certificate relates to $ principal amount of Notes held in [ ] book-entry or [ ] definitive form by ------------------------ (the "Transferor"). The Transferor, by written order, has requested the Trustee: [ ] to deliver in exchange for its beneficial interest in the Global Note held by the depository, a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or [ ] to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and, the transfer of this Note does not require registration under the Securities Act of 1933, as amended (the "Securities Act") because such Note: [ ] is being acquired for the Transferor's own account, without transfer; [ ] is being transferred pursuant to an effective registration statement; [ ] is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on such Rule 144A; [ ] is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act;** [ ] is being transferred pursuant to Rule 144 under the Securities Act;** or [ ] is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain: _______________________________ ). " --------------------------------- [INSERT NAME OF TRANSFEROR] By: ------------------------ Date: --------------------- - ------------------------------------ * Check applicable box. ** If the box is checked, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. C-1 EX-4.22 5 WARRANT AGREEMENT - FIRST UNION NATIONAL BANK 1 EXHIBIT 4.22 WARRANT AGREEMENT Dated as of December 30, 1997 Between TRANSAMERICAN REFINING CORPORATION and FIRST UNION NATIONAL BANK as the Warrant Agent ---------------------------------------------------------------- Warrants for Common Stock of TransAmerican Refining Corporation ---------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE II Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.1 Form of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.2 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.3 Execution and Delivery of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.4 Loss or Mutilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.5 Transfer of Notes and Warrants Prior to Separation; Separation . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE III Exercise Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.1 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.2 Exercise Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.3 Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.4 Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.5 Issuance of Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.6 Fractional Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.7 Reservation of Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.8 Cancellation of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE IV Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.1 Adjustment of Exercise Price and Warrant Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.2 Adjustment for Change in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.3 Adjustment for Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Page ---- SECTION 4.4 Adjustment for Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.5 Adjustment for Common Stock Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.6 Adjustment for Convertible Securities Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.7 [Intentionally Omitted.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.8 Consideration Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.9 When De Minimis Adjustment May Be Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.10 Adjustment to Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.11 When No Adjustment Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.12 Notice of Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.13 Voluntary Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.14 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.15 Form of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 4.16 Other Dilutive Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 4.17 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.18 Non-applicability of Article IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE V Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 5.1 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 5.2 Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 5.3 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.4 Special Transfer Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.5 Surrender of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VI Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 6.1 Appointment of Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 6.2 Rights and Duties of Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 6.3 Individual Rights of Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 6.4 Warrant Agent's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 6.5 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 6.6 Successor Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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Page ---- ARTICLE VII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.1 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.2 SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.3 Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.4 Persons Benefitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.5 Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.6 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 7.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.9 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.10 Multiple Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.11 Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
iii 5 THIS WARRANT AGREEMENT (this "Agreement"), dated as of December 30, 1997, is between TRANSAMERICAN REFINING CORPORATION, a Texas corporation (together with its permitted successors and assigns, the "Company"), and FIRST UNION NATIONAL BANK, as warrant agent (together with its permitted successors and assigns, the "Warrant Agent"). WHEREAS, the Company has entered into a purchase agreement, dated December 22, 1997 (the "Purchase Agreement"), with Jefferies & Company, Inc. (the "Purchaser"), pursuant to which the Company has agreed to issue and sell to the Purchaser 175,000 Units (as defined below), consisting of (i) $175,000,000 aggregate principal amount of 16% Senior Subordinated Notes due 2003, Series A (the "Notes") and (ii) 175,000 warrants (together with the warrants (the "Purchaser Warrants") to purchase shares of the Company's Common Stock (as defined below) issued to the Purchaser pursuant to the Solicitation Agent Agreement, dated December 22, 1997, among the Company, TransAmerican Energy Corporation, a Delaware corporation, and the Purchaser, the "Warrants") to purchase initially 2,335,245 shares (together with the shares of the Company's Common Stock underlying the Purchaser Warrants, the "Warrant Shares") of the Company's common stock, $0.01 par value per share (the "Common Stock"), at an exercise price of $0.01 per share; WHEREAS, the Notes will be issued pursuant to an indenture (the "Indenture") to be dated as of December 30, 1997 between the Company and First Union National Bank, as trustee (the "Trustee"); WHEREAS, the Warrants are to be issued pursuant to this Agreement; WHEREAS, the Notes and the Warrants (other than the Purchaser Warrants) (the "Unit Warrants") will be sold in Units, each Unit consisting of (i) one Note in the principal amount of $1,000 and (ii) one Warrant to purchase initially 13.344257 Warrant Shares at an exercise price of $0.01 per share (the "Units"); WHEREAS, prior to Separation (as defined below), record ownership of the Notes and beneficial ownership of the Unit Warrants will be evidenced by record ownership of the Units; WHEREAS, definitive certificates (the "Custodian Warrants") evidencing the Unit Warrants will be held by the Warrant Agent as custodian for the registered holders of the Units; WHEREAS, the Company further desires the Warrant Agent to act on behalf of the Company in connection with the issuances, division, transfer, exchange, substitution and exercise of the Warrants, and the Warrant Agent is willing to so act; and 6 NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Warrants (or until Separation (as defined below), the registered holders of Units) (each a "Holder"): ARTICLE I Definitions SECTION 1.1 Definitions. Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified Person means (i) any other Person which, directly or indirectly, is controlling or controlled by or under direct or indirect common control with such specified Person, or (ii) any other Person who is a director or executive officer (A) of such Person, (B) of any subsidiary of such specified Person, or (C) of any Person described in clause (i) above. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Affiliate shall also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Agent Member" has the meaning given to such term in Section 5.3. "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means any day other than (i) Saturday or Sunday, (ii) or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Common Stock" has the meaning given to such term in the recitals to this Agreement. "Company" has the meaning given to such term in the preamble to this Agreement. "Current Market Value" per share of Common Stock or any other security at any date means, on any date of determination (a) the average of the daily closing 2 7 sale prices for each of 15 trading days immediately preceding such date (or such shorter number of days during which such security has been listed or traded), if the security has been listed on the New York Stock Exchange, the American Stock Exchange or other national securities exchange or the NASDAQ National Market for at least 10 trading days prior to such date, (b) if such security is not so listed or traded, the average of the daily closing bid prices for each of the 15 trading days immediately preceding such date (or such shorter number of days during which such security had been quoted), if the security has been quoted on a national over-the-counter market for at least 10 trading days, and (c) otherwise, the value of the security most recently determined as of a date within the six months preceding such day by the Board. "Definitive Warrants" has the meaning given to such term in Section 2.1. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC pursuant thereto. "Exercise Date" has the meaning given to such term in Section 3.2. "Exercise Price" has the meaning given to such term in Section 3.1. "Expiration Date" has the meaning given to such term in Section 3.2. "Global Warrant" has the meaning given to such term in Section 2.1. "Global Warrants" has the meaning given to such term in Section 2.1. "Holders" has the meaning given to such term in the recitals to this Agreement. "Indenture" has the meaning given to such term in the recitals to this Agreement. "Institutional Accredited Investor" has the meaning given to such term in Section 2.3. "Issue Date" means the date on which Warrants are initially issued, which is December 30, 1997. "Notes" has the meaning given to such term in the recitals to this Agreement. 3 8 "Offering Circular" means the final Offering Circular of the Company dated December 23, 1997 relating to the issuance and sale of the Units. "Officer" means the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President or the Treasurer of the Company. "Old Warrants" means the common stock purchase warrants of the Company issued pursuant to the warrant agreement, dated as of February 23, 1995, between the Company and First Union National Bank, or successor warrant agent, as amended. "Person" means any individual, corporation, company (including any limited liability company), partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redeemable Stock" means, with respect to any Person, any capital stock that by its terms (or by the terms of any security into which it is convertible or exchangeable) or otherwise (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchasable at the option of the holder thereof, in whole or in part, or (iii) is convertible or exchangeable for indebtedness. "Restricted Definitive Warrant" has the meaning given to such term in Section 2.3. "Restricted Warrant" means a Global Warrant or a Restricted Definitive Warrant. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Stock Transfer Agent" has the meaning given to such term in Section 3.5. "Voting Stock" means all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Warrant Agent" has the meaning given to such term in the Recitals. 4 9 "Warrant Certificates" has the meaning given to such term in Section 2.1. "Warrant Number" has the meaning given to such term in Article IV. "Warrant Shares" means the Common Stock (and other securities) issuable upon the exercise of the Warrants. "Warrants" has the meaning given to such term in the Recitals. SECTION 1.2 Rules of Construction. Unless the text otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including, without limitation; (v) references to "Section" and "Article" refer to Sections and Articles of this Agreement, unless the context clearly requires otherwise; and (vi) words in the singular include the plural and words in the plural include the singular. ARTICLE II Warrant Certificates SECTION 2.1 Form of Warrant Certificates. Prior to Separation, beneficial ownership of the Unit Warrants will be evidenced by record ownership of the Units. From and after Separation, the Unit Warrants will be issued (a) in global form (the "Global Warrant"), substantially in the form of Exhibit A attached hereto (including the text accompanying the footnotes thereto), and (b) in definitive form (the "Definitive Warrants"), substantially in the form of Exhibit A (excluding the text accompanying the footnotes thereto). The Purchaser Warrants will be issued as a Definitive Warrant or Warrants. The Global Warrant shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon; provided that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Warrant to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Warrant Agent in accordance with instructions given by the holder thereof. The Depository with respect to the Global Warrant (the "Depository") shall be The Depository Trust Company until a successor shall be appointed by the Company and become such Depository. The Global Warrant shall be registered in the name of the Depository, or the nominee of such Depository. So long as the Depository or its nominee is the registered owner of such Global Warrant it will be deemed the sole owner and holder of such Global Warrant for all purposes hereunder and under such Global Warrant. The 5 10 certificates (the "Warrant Certificates") evidencing the Global Warrant and the Definitive Warrants to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit A attached hereto. Neither the Company nor the Warrant Agent will have any responsibility or liability for any aspects of the records relating to beneficial ownership interest of the Global Warrant in the name of the Depository or its nominee or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.2 Legends. Unless and until a Warrant or Warrant Share is sold under an effective registration statement, each Warrant Certificate evidencing the Global Warrants and the Definitive Warrants (and all Warrant Certificates issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares shall bear a legend in substantially the following form (with any appropriate modification for the Warrant Shares): THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH TRANSAMERICAN REFINING CORPORATION ("THE COMPANY") OR ANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE 6 11 SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. SECTION 2.3 Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase initially an aggregate of up to 3,364,636 Warrant Shares may be executed, on or after the Issue Date, by the Company and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates upon the order and at the direction of the Company to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by this Agreement. The Warrant Certificates shall be executed on behalf of the Company by an Officer of the Company either manually or by facsimile signature printed thereon. The Warrant Certificates shall be countersigned manually by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any Officer of the Company whose signature shall have been placed upon any of the Warrant Certificates shall cease to be such Officer of the Company before countersignature by the Warrant Agent and issuance and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such Officer of the Company. Subject to Section 2.5, Warrants offered and sold in their initial distribution to a limited number of institutions that are accredited investors (which are not QIBs) within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and institutions in which all the equity owners are such accredited investors) (together referred to as "Institutional Accredited Investors") in transactions exempt from registration under the Securities Act will be delivered, after separation, in certificated fully registered form (a "Restricted Definitive Warrant") substantially in the form set forth in Exhibit A. Such Warrants shall be delivered to such Institutional Accredited Investors only upon the execution and delivery to the Company and the Initial Purchaser of an institutional accredited investor transferee compliance letter (an "Investor Letter") substantially in the form of Annex A to the Offering Circular. Restricted Definitive Warrants may not be transferred or exchanged for 7 12 interests in the Global Warrant or another Restricted Definitive Warrant, except as provided herein. SECTION 2.4 Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity satisfactory to them and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and the Warrant Agent shall countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Section 2.4, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the reasonable fees and expenses of the Warrant Agent and of counsel to the Company) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 2.4 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable under applicable law, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.4 are exclusive and shall preclude (to the extent lawful) all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary, with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. Section 2.5. Transfers of Notes and Warrants Prior to Separation; Separation. The Custodian Warrants will be held by the Warrant Agent, as custodian for the holders of the Units, until such time as the registered holder of a Unit shall have surrendered such Unit to the Warrant Agent for the exchange of such Unit, in whole or in part, for a Definitive Warrant or Warrants and for a Note or Notes of a like aggregate principal amount of authorized denominations (such surrender and exchange, together with the exchange for the Global Warrant referred to below, are herein referred to as a "Separation" and the related Warrants are referred to as being "Separated"); provided, that Separation may not occur until the earlier of (i) one year from the date hereof, (ii) commencement of the Exchange Offer (as defined in the Registration Rights Agreement, dated the date hereof, between the Company and the Purchaser) and (iii) such other date as may be determined by the Purchaser. Each Unit presented for Separation shall be duly endorsed by the registered holder thereof or by the duly appointed legal representative thereof or by a duly authorized attorney-in-fact. The Warrant Agent shall deliver such Unit to the Trustee pursuant to the provisions of the Indenture, with instructions to issue Notes in authorized denominations for an aggregate principal amount equal to the aggregate principal amount of the Notes surrendered in the name 8 13 of each registered holder or holders. The Warrant Agent, as custodian, shall deliver (or cause to be delivered) the Notes so received from the Trustee and a Warrant Certificate or Certificates executed by the Company and countersigned by the Warrant Agent in the name of such registered holder or holders for such aggregate number of Warrants as shall equal Warrants so exchanged for Separation, in each case, bearing numbers or other distinguishing symbols not contemporaneously outstanding to the holder or holders entitled thereto. ARTICLE III Exercise Terms SECTION 3.1 Exercise Price. Each Warrant shall initially entitle the Holder thereof, subject to adjustment pursuant to the terms of this Agreement, to purchase 13.344257 shares of Common Stock for an exercise price of $0.01 per share of Common Stock (the "Exercise Price"). The Warrant Number and Exercise Price are both subject to adjustment as set forth in Article IV. SECTION 3.2 Exercise Period. (a) Subject to the terms and conditions set forth herein, the Warrants shall only be exercisable at any time or from time to time on any Business Day on or after the first anniversary of the Issue Date (the "Exercise Date"). (b) No Warrant shall be exercisable after June 30, 2003 (the "Expiration Date"). SECTION 3.3 Expiration. A Warrant shall terminate and become void as of the earlier of (i) the close of business on the Expiration Date or (ii) the date such Warrant is exercised. The Company shall give notice not less than 90, and not more than 120, days prior to the Expiration Date to the Holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of the close of business on the Expiration Date; provided, however, that notwithstanding that the Company may fail to give notice as provided in this Section 3.3, the Warrants will terminate and become void on the Expiration Date. SECTION 3.4 Manner of Exercise. Warrants may be exercised at any time on or after the Exercise Date by surrendering to the Warrant Agent the Warrant Certificates at any office or agency maintained for that purpose, together with the form of election to purchase Common Stock on the reverse thereof duly completed and signed by the Holder thereof and paying in full the Exercise Price for each Warrant exercised and any other amounts required to be paid pursuant to Section 5.2 hereof. Payment of the Exercise Price (and any other required amounts) shall be made in the form of cash or a certified or official bank check payable to the order of the Company. Subject to Section 3.2, the rights represented by the Warrants shall be exercisable at the election of the Holders thereof either in 9 14 full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise in respect of less than all the Warrant Shares purchasable on such exercise at any time prior to the expiration of the Exercise Period a new Warrant Certificate exercisable for the remaining Warrant Shares will be issued. The Warrant Agent shall countersign and deliver the required new Warrant Certificates, and the Company, at the Warrant Agent's request, shall supply the Warrant Agent with Warrant Certificates duly signed on behalf of the Company for such purpose. SECTION 3.5 Issuance of Warrant Shares. Upon the surrender of Warrant Certificates, as set forth in Section 3.4, the Company shall issue and cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Stock Transfer Agent") to countersign and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise, to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price, as aforesaid. SECTION 3.6 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.6, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the same fraction of the Current Market Value for one share of Common Stock less the portion of the Exercise Price attributable thereto, rounded to the nearest whole cent. SECTION 3.7 Reservation of Warrant Shares. The Company shall at all times keep reserved out of its authorized shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall at all times until the expiration of the Exercise Period reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Stock Transfer Agent. The Company will supply such Stock Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.6. The Company will furnish to such Stock Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each Holder. 10 15 The Company covenants that all shares of Common Stock that may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of preemptive rights, free from all taxes and free from all liens, charges and security interests, created by or through the Company, with respect to the issue thereof. SECTION 3.8 Cancellation of Warrant Certificates. In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if so delivered, shall be canceled by it and retired. The Warrant Agent shall cancel all Warrant Certificates properly surrendered for exchange, substitution, transfer or exercise. The Warrant Agent shall destroy canceled Warrant Certificates held by it and deliver a certificate of destruction to the Company. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all monies received by the Warrant Agent for the purchase of Warrant Shares through the exercise of such Warrants. SECTION 3.9 Compliance with Law. (a) Notwithstanding anything in this Agreement to the contrary, in no event shall a Holder be entitled to exercise a Warrant, unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective or (ii) in the opinion of counsel addressed to the Warrant Agent an exemption from the registration requirements is available under the Securities Act for the issuance of the Warrant Shares (and the delivery of any other securities for which the Warrants may at the time be exercisable) at the time of such exercise. (b) If any shares of Common Stock required to be reserved for purposes of exercise of Warrants require, under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will in good faith and as expeditiously as possible endeavor also to cause such shares to be duly registered or approved by such governmental authority or listed on the relevant national securities exchange, as the case may be. 11 16 ARTICLE IV Antidilution Provisions SECTION 4.1 Adjustment of Exercise Price and Warrant Number. The number of shares of Common Stock issuable upon the exercise of each Warrant (the "Warrant Number") is initially 13.344257. The Warrant Number is subject to adjustment from time to time upon the occurrence of the events enumerated in, or as otherwise provided in, this Article IV . SECTION 4.2 Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (3) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock (other than reclassifications arising solely as a result of a change in the par value or no par value of the Common Stock); then the Warrant Number in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which it would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. 12 17 Such adjustment shall be made successively whenever any event listed above shall occur. If the occurrence of any event listed above results in an adjustment under Section 4.3 or 4.4 below, no further adjustment shall be made under this Section 4.2. The Company shall not issue shares of Common Stock as a dividend or distribution on any class of capital stock other than Common Stock unless (i) such dividend or distribution is not prohibited by the Indenture and (ii) the Warrant Holders also receive such dividend or distribution on a ratable basis or the appropriate adjustment to the Warrant Number is made under this Article IV. SECTION 4.3 Adjustment for Rights Issue. If the Company distributes (and receives no consideration therefor) any rights, options or warrants (whether or not immediately exercisable) to holders of any class of its Common Stock entitling them to purchase shares of Common Stock at a price per share less than the Current Market Value per share on the record date relating to such distribution, the Warrant Number shall be adjusted in accordance with the formula: W' = W x O + N --------- O + N x P ----- M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date for any such distribution. O = the number of shares of Common Stock outstanding on the record date for any such distribu- tion. N = the number of additional shares of Common Stock issuable upon exercise of such rights, options or warrants. P = the exercise price per share of such rights, options or warrants. M = the Current Market Value per share of Common Stock on the record date for any such distribution. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of 13 18 the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. SECTION 4.4 Adjustment for Other Distributions. If the Company distributes to holders of any class of its Common Stock (as such) (i) any evidences of indebtedness of the Company or any of its subsidiaries, (ii) any assets of the Company or any of its subsidiaries, or (iii) any rights, options or warrants to acquire any of the foregoing or to acquire any other securities of the Company, the Warrant Number shall be adjusted in accordance with the formula: W' = W x M ----- M - F where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date mentioned below. M = the Current Market Value per share of Common Stock on the record date mentioned below. F = the fair market value on the record date mentioned below of the shares, indebtedness, as- sets, rights, options or warrants distributable to the holder of one share of Common Stock. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted as if "F" in the above formula was the fair market value on the record date of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the record date. In the event that "F" in the above formula is greater than or equal to "M" in the above formula, then each Holder of the Warrants, notwithstanding that such Holder's Warrants 14 19 have not been exercised, shall receive the distribution referred to in this Section 4.4 on the basis of number of Warrant Shares underlying the Warrants held by each such Holder. This subsection does not apply to rights, options or warrants referred to in Section 4.3. SECTION 4.5 Adjustment for Common Stock Issue. If the Company issues shares of Common Stock for a consideration per share less than the Current Market Value per share on the date the Company fixes the offering price of such additional shares, the Warrant Number shall be adjusted in accordance with the formula: W' = W x A ------ O + P -- M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock. P = the aggregate consideration received for the issuance of such additional shares of Common Stock. M = the Current Market Value per share of Common Stock on the date of issuance of such addi- tional shares. A = the number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This Section 4.5 does not apply to any of the transactions described in Section 4.2 or to the issuance of Common Stock upon exercise of the Old Warrants. 15 20 SECTION 4.6 Adjustment for Convertible Securities Issue. If the Company issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than securities issued in transactions described in Sections 4.3 or 4.4) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities less than the Current Market Value per share on the date of issuance of such securities, the Warrant Number shall be adjusted in accordance with this formula: W' = W x O + D ----- O + P - M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. P = the sum of the aggregate consideration received for the issuance of such securities and the aggregate minimum consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities. M = the Current Market Value per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares of Common Stock deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when the conversion, exchange or exercise rights of such securities have expired or been terminated, then the adjusted Warrant Number shall promptly be readjusted to the adjusted Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. If the aggregate minimum 16 21 consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities shall be increased by virtue of provisions therein contained or upon the arrival of a specified date or the happening of a specified event, then the Warrant Number shall promptly be readjusted to the Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of such increased minimum consideration. This Section 4.6 does not apply to the issuance of the Warrants or to any of the transactions described in Section 4.3. SECTION 4.7 [INTENTIONALLY OMITTED.] SECTION 4.8 Consideration Received. For purposes of any computation respecting consideration received pursuant to Sections 4.4, 4.5 and 4.6, the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash (without any deduction being made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith); (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof (irrespective of the accounting treatment thereof) as determined in good faith by the Board; and (3) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion, exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subsection). SECTION 4.9 When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant Number need be made unless the adjustment would require an increase or decrease of at least 0.5% in the Warrant Number. Any adjustment that is 17 22 not made shall be carried forward and taken into account in any subsequent adjustment, provided that no such adjustment shall be deferred beyond the date on which a Warrant is exercised. All calculations under this Article IV shall be made to the nearest 1/100th of a share. SECTION 4.10 Adjustment to Exercise Price. Upon each adjustment to the Warrant Number pursuant to this Article IV, the Exercise Price shall be adjusted so that it is equal to the Exercise Price in effect immediately prior to such adjustment multiplied by a quotient, the numerator of which is the Warrant Number in effect immediately prior to such adjustment, and the denominator of which is the Warrant Number in effect immediately after such adjustment; provided, that the Exercise Price shall not be adjusted below the lesser of $0.01 per share of Common Stock and the then par value per share of Common Stock. SECTION 4.11 When No Adjustment Required. If an adjustment is made upon the establishment of a record date for a distribution subject to Sections 4.2, 4.3 or 4.4 hereof and such distribution is subsequently cancelled, the Warrant Number and Exercise Price then in effect shall be readjusted, effective as of the date when the Board determines to cancel such distribution, to that which would have been in effect if such record date had not been fixed. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the amount of cash into which such Warrants are exercisable. Interest will not accrue on the cash. SECTION 4.12 Notice of Adjustment. Whenever the Warrant Number or Exercise Price is adjusted, The Company shall provide the notices required by Section 7.7 hereof. SECTION 4.13 Voluntary Reduction. The Company from time to time may reduce the Exercise Price by any amount for any period of time (including, without limitation, permanently) if the period is at least 20 days and if the reduction is irrevocable during the period. Whenever the Exercise Price is reduced, the Company shall mail to the Holders a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced Exercise Price takes effect. The notice shall state the reduced Exercise Price and the period it will be in effect. 18 23 A reduction of the Exercise Price under this Section 4.13 (other than a permanent reduction) does not change or adjust the Exercise Price otherwise in effect for purposes of Sections 4.2, 4.3, 4.4, 4.5 or 4.6. SECTION 4.14 Reorganizations. In case of any capital reorganization, other than in the cases referred to in Sections 4.2, 4.3, 4.4, 4.5 or 4.6 hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock into shares of other stock or other securities or property), or the sale of the property of the Company as an entirety or substantially as an entirety (collectively, such actions being hereinafter referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the amount of cash, the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of the Company, whose determination shall be described in a duly adopted resolution certified by The Company's Secretary or Assistant Secretary, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization or the corporation purchasing or leasing such assets or other appropriate corporation or entity shall expressly assume, by a supplemental Warrant Agreement or other acknowledgment executed and delivered to the Holder(s), the obligation to deliver to each such Holder such cash, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and all other obligations and liabilities under this Agreement. SECTION 4.15 Form of Warrants. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. 19 24 SECTION 4.16 Other Dilutive Events. In case any event shall occur as to which the provisions of this Article IV are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of such sections, then, in each such case, the Company shall make a good faith adjustment to the Exercise Price and Warrant Number into which each Warrant is exercisable in accordance with the intent of this Article IV and, upon the written request of the holders of a majority of the Warrants, shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Article IV, necessary to preserve, without dilution, the purchase rights represented by these Warrants. Upon receipt of such opinion, the Company shall promptly mail a copy thereof to the Holder of each Warrant and shall make the adjustments described therein. SECTION 4.17 Miscellaneous. For purpose of this Article IV the term "shares of Common Stock" shall mean (i) shares of any class of stock designated as Common Stock of the Company as of the date of this Agreement, (ii) shares of any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value and (iii) shares of Common Stock of the Company issuable upon exercise of options, warrants or rights to purchase Common Stock of the Company or upon conversion or exchange of securities convertible into or exchangeable for shares of Common Stock of the Company outstanding at the date of determination. In the event that at any time, as a result of an adjustment made pursuant to this Article IV, the holders of Warrants shall become entitled to purchase any securities of The Company other than, or in addition to, shares of Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in Sections 4.2 through 4.16 of this Article IV, inclusive, and the provisions of this Agreement with respect to the Warrant Shares or the Common Stock shall apply on like terms to any such other securities. SECTION 4.18 Non-applicability of Article IV. The provisions of this Article IV do not apply to (i) a change solely in the par value or no par value of the Common Stock, provided that the Company shall not increase the par value to exceed the Exercise Price, (ii) the conversion or exchange (other than pursuant to a reclassification), in any case on a share-for-share basis, of Common Stock for non-voting common stock that has rights (other than voting rights) identical to the Common Stock, or of such non-voting stock for Common Stock, (iii) the issuance to employees of Transamerican Energy 20 25 Corporation or any of its subsidiaries of stock or stock options in an amount which, upon purchase or exercise, as the case may be, would represent in the aggregate, less than 10% of the Company's Common Stock on a fully-diluted basis, (iv) any distribution by the Company of Capital Stock of TransTexas Gas Corporation to a holder or holders of Common Stock, or (v) any exercise of Warrants. ARTICLE V Transferability SECTION 5.1 Transfer and Exchange. The Company shall cause to be kept at the office of the Warrant Agent a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrant Certificates and transfers or exchanges of Warrant Certificates as herein provided. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefit under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. A Holder may transfer its Warrants only by complying with the terms of this Agreement. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the register. Prior to the registration of any transfer of Warrants by a Holder as provided herein, the Company, the Warrant Agent, any agent of the Company or the Warrant Agent may treat the Person in whose name the Warrants are registered as the owner thereof for all purposes and as the Person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of a Global Warrant shall, by acceptance of such Global Warrant, agree that transfers of beneficial interests in such Global Warrant may be effected only through a book-entry system maintained by the Holder of such Global Warrant (or its agent), and that ownership of a beneficial interest in the Warrants represented thereby shall be required to be reflected in a book entry. When Warrant Certificates are presented to the Warrant Agent with a request to register the transfer or to exchange them for an equal amount of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange in accordance with the provisions hereof. To permit registrations of transfer and exchanges, the Company shall make available to the Warrant Agent a sufficient number of executed Warrant Certificates to effect such registrations of transfers and exchanges. No service charge shall be made to the Holder for any registration of transfer or exchange of Warrants, but the Company may require from the transferring or exchanging Holder payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.4 and exchanges in respect of portions of Warrants not exercised and the Company may deduct such taxes from any payment of money to be made and such transfer or exchange shall not be consummated (if such taxes are not deducted in full) unless or until the Holder shall have paid to the Company the amount of such tax 21 26 or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. SECTION 5.2 Registration, Registration of Transfer and Exchange. (a) Transfer and Exchange of Definitive Warrants. When Definitive Warrants are presented to the Warrant Agent with a request (i) to register the transfer of the Definitive Warrant or (ii) to exchange such Definitive Warrants for an equal number of Definitive Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Definitive Warrants so presented have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Warrant Agent, duly executed by the holder thereof or by his attorney, duly authorized in writing; (b) Transfer of a Definitive Warrant for a Beneficial Interest in Global Warrant. A Definitive Warrant may be exchanged for a beneficial interest in the Global Warrant only upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with written instructions directing the Warrant Agent to make an endorsement on the Global Warrant to reflect an increase in the number of Warrants and Warrant Shares represented by the Global Warrant, and then the Warrant Agent shall cancel such Definitive Warrant and cause the number of Warrants and Warrant Shares represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall countersign a new Global Warrant representing the appropriate number of Warrants and Warrant Shares. (c) Transfer and Exchange of Global Warrant. The transfer and exchange of the Global Warrant or beneficial interests therein shall be effected through the Depository, in accordance with this Warrant Agreement and the procedures of the Depository therefor. Notwithstanding any other provisions of this Warrant Agreement, the Global Warrant may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository: provided, that if: (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Warrant and a successor Depository for the Global Warrant is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants under this Warrant Agreement. 22 27 then the Company shall execute and the Warrant Agent shall countersign and deliver, Definitive Warrants in an aggregate number equal to the number of Warrants evidenced by the Global Warrant, in exchange for such Global Warrant. (d) Transfer of a Beneficial Interest in Global Warrant for a Definitive Warrant. Upon receipt by the Warrant Agent of written transfer instructions (or such other form of instructions as is customary for the Depository) from the Depository (or its nominee) on behalf of any person having a beneficial interest in the Global Warrant, the Warrant Agent shall cause, in accordance with the standing instructions and procedures existing between the Depository and the Warrant Agent (the "Standing Instructions"), the number of Warrants and Warrant Shares represented by the Global Warrant to be reduced and, following such reduction, the Company shall execute and the Warrant Agent shall countersign and deliver to the transferee, as the case may be, a Definitive Warrant. Definitive Warrants issued in exchange for a beneficial interest in the Global Warrant shall be registered in such names and in such authorized denominations as the Depository shall instruct the Warrant Agent. (e) Cancellation and/or Adjustment of Global Warrant. At such time as all beneficial interests in the Global Warrant have either been exchanged for Definitive Warrants, exercised or cancelled, the Global Warrant shall be returned to or retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in the Global Warrant is exchanged for Definitive Warrants, exercised or cancelled, the number of Warrants and Warrant Shares represented by such Global Warrant shall be reduced and an endorsement shall be made on such Global Warrant by the Warrant Agent to reflect such reduction. SECTION 5.3 [INTENTIONALLY OMITTED]. SECTION 5.4 Special Transfer Provisions. The following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants to any Institutional Accredited Investor that is not a QIB (excluding Non-U.S. Persons): (i) The Warrant Agent shall register the transfer of any Warrant Certificate, if (x)(A) the requested transfer is at least two years after the Issue Date or (B) the proposed transferee has delivered to the Warrant Agent certificates substantially in the forms of Exhibit B hereto and (y) if requested by the Warrant Agent or the Company, the proposed transferee has delivered to the Warrant Agent or the Company, an opinion of counsel acceptable to the Warrant Agent or the Company that such transfer is in compliance with the Securities Act. 23 28 (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the Global Warrant, upon receipt by the Warrant Agent of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with DTC's and the Warrant Agent's procedures, the Warrant Agent shall reflect on its books and records the date and a decrease in the number of Warrants represented by the Global Warrant in an amount equal to the number of Warrants represented by the Global Warrant to be transferred, and the Company shall execute, and the Warrant Agent shall countersign and deliver, one or more Restricted Definitive Warrants of like tenor and amount. (b) Transfers to QIBs. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants to a QIB: (i) If the Warrants to be transferred are represented by (x) Restricted Definitive Warrants, the Warrant Agent shall register the transfer if it has received from such transferor a certificate substantially in the form of Exhibit B hereto that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Warrant Certificate stating, or has otherwise advised the Company and the Warrant Agent in writing, that it is purchasing the Warrants for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the Global Warrant, the transfer of such interest may be effected only through the book-entry system maintained by DTC. (ii) If the proposed transferee is an Agent Member, and the Warrants to be transferred are represented by Restricted Definitive Warrants, upon receipt by the Warrant Agent of the documents referred to in clause (i) above and instructions given in accordance with DTC's and the Warrant Agent's procedures, the Warrant Agent shall reflect on its books and records the date and an increase in the number of Warrants represented by the Global Warrant in an amount equal to the number of Warrants represented by the Restricted Definitive Warrants, and the Warrant Agent shall cancel the Restricted Definitive Warrant. (c) General. By its acceptance of any Warrants represented by a Warrant Certificate bearing the legend in Section 2.2, each Holder of such Warrants acknowledges the restrictions on transfer of such Warrants set forth in this Agreement and in the legend and agrees that it will transfer such Warrants only as provided in this Agreement. The Warrant Agent shall not register a transfer of any Warrants unless such transfer complies with the requirements of this Section 5.4. In connection with any transfer of Warrants, each Holder agrees by its acceptance of Warrants to furnish the Warrant Agent or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being 24 29 made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided, however, that the Warrant Agent shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Warrant Agent's only obligation to enforce the transfer restrictions of this Agreement shall be to require the certifications and opinions specifically required by this Section 5.4 as a condition to a transfer. (d) Records. The Warrant Agent shall retain copies of all letters, notices and other written communications received pursuant to Section 5.3 hereof or this Section 5.4. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Warrant Agent. SECTION 5.5 Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange, exercise or repurchase of the Warrants represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent and shall not be reissued by the Company and, except as provided in this Article V in case of an exchange or in Article III hereof in case of the exercise or repurchase of less than all the Warrants represented thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such canceled Warrant Certificates as the Company may direct in writing. ARTICLE VI Warrant Agent SECTION 6.1 Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with provisions of this Agreement and the Warrant Agent hereby accepts such appointment. SECTION 6.2 Rights and Duties of Warrant Agent. (a) Agent for the Company. In acting under this Warrant Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship or agency or trust for or with any of the holders of Warrant Certificates or beneficial owners of Warrants. (b) Counsel. The Warrant Agent may consult with counsel satisfactory to it, and the advice of such counsel shall be full and complete authorization and protection in respect 25 30 of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel. (c) Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (d) No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder which may tend to involve it in any expense or liability for which it does not receive indemnity if such indemnity is reasonably requested. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates countersigned by the Warrant Agent and delivered by it to the Holders or on behalf of the Holders pursuant to this Agreement or for the application by the Company of the proceeds of the Warrants. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the receipt of any written demand from a Holder with respect to such default, including any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise. (e) Not Responsible for Adjustments or Validity of Stock. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require an adjustment of the Warrant Number or the Exercise Price, or with respect to the nature or extent of any adjustment when made, or with respect to the method employed, or herein or in any supplemental agreement provided to be employed, in making the same. The Warrant Agent shall not be accountable with respect to the validity or value of any shares of Common Stock or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or upon any adjustment pursuant to Article IV, and it makes no representation with respect thereto. The Warrant Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates upon the surrender of any Warrant Certificate for the purpose of exercise or upon any adjustment pursuant to Article IV, or to comply with any of the covenants of the Company contained in Article IV. SECTION 6.3 Individual Rights of Warrant Agent. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or its affiliates or become pecuniarily interested in transactions in which the Company or its affiliates may be interested, or contract with or lend money to the Company or its affiliates or otherwise act as fully and freely as though it were not 26 31 the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 6.4 Warrant Agent's Disclaimer. The Warrant Agent shall not be responsible for and makes no representation as to the validity or adequacy of this Agreement or the Warrant Certificates and it shall not be responsible for any statement in this Agreement or the Warrant Certificates other than its countersignature thereon. SECTION 6.5 Compensation and Indemnity. The Company agrees to pay the Warrant Agent from time to time reasonable compensation for its services and to reimburse the Warrant Agent upon request for all reasonable out-of-pocket expenses incurred by it, including the reasonable compensation and expenses of the Warrant Agent's agents and counsel, in connection with the services rendered hereunder. The Company shall indemnify the Warrant Agent against any loss, liability or expense (including reasonable agents' and attorneys' fees and expenses) incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or performance of its duties under this Agreement. The Warrant Agent shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Warrant Agent through willful misconduct, negligence or bad faith. The Company's payment obligations pursuant to this Section 6.5 shall survive the termination of this Agreement. To secure the Company's payment obligations under this Agreement, the Warrant Agent shall have a lien prior to the Warrant Holders on all money or property held or collected by the Warrant Agent. SECTION 6.6 Successor Warrant Agent. (a) The Company To Provide Warrant Agent. The Company agrees for the benefit of the Holders that there shall at all times be a Warrant Agent hereunder until all the Warrants have been exercised or are no longer exercisable. (b) Resignation and Removal. The Warrant Agent may at any time resign by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall not be less than 60 days after the date on which such notice is given unless the Company otherwise agrees. The Warrant Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed by or on behalf of the Company and specifying such removal and the date when it shall become effective, which date shall not be less than 60 days after such notice is given unless the Warrant Agent otherwise agrees. Any removal under this Section 6.6 shall take effect upon the appointment by the Company as hereinafter provided of a successor Warrant Agent (which shall be a bank or trust company authorized under the laws of the jurisdiction of its organization to exercise corporate trust powers) and the acceptance of such appointment by such successor Warrant Agent. 27 32 (c) The Company To Appoint Successor. In case at any time the Warrant Agent shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or shall commence a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Warrant Agent or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Warrant Agent in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law; or a decree order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant Agent or of its property or affairs, or any public officer shall take charge or control of the Warrant Agent or of its property or affairs for the purpose of rehabilitation, conservation, winding up of or liquidation, a successor Warrant Agent, qualified as aforesaid, shall be appointed by the Company by an instrument in writing, filed with the successor Warrant Agent (or, in the absence of such appointment within 60 days after the notice of resignation or removal, either party hereto may petition the appointment of a successor by a court of competent jurisdiction.) Upon the appointment as aforesaid of a successor Warrant Agent and acceptance by the successor Warrant Agent of such appointment, the Warrant Agent shall cease to be Warrant Agent hereunder; provided, however, that in the event of the resignation of the Warrant Agent under this subsection (c), such resignation shall be effective on the earlier of (i) the date specified in the Warrant Agent's notice of resignation and (ii) the appointment and acceptance of a successor Warrant Agent hereunder. As soon as practicable after appointment of the successor Warrant Agent, the Company shall cause written notice of the change in the Warrant Agent to be given to each of the registered holders of the Warrants in the manner provided for in Section 7.7 hereof. However, failure to give any notice provided for in this clause (c) or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. (d) Successor Expressly To Assume Duties. Any successor Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of such predecessor with like effect as if originally named as Warrant Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor Warrant Agent shall be entitled to receive, all monies, securities and other property on deposit with or held by such predecessor, as Warrant Agent hereunder. (e) Successor by Merger. Any corporation into which the Warrant Agent hereunder may be merged or consolidated, or any corporation resulting from any merger or 28 33 consolidation to which the Warrant Agent shall be a party, or any corporation to which the Warrant Agent shall sell or otherwise transfer all or substantially all of its corporate trust business; provided that it shall be qualified as aforesaid, shall be the successor Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE VII Miscellaneous SECTION 7.1 [INTENTIONALLY OMITTED.] SECTION 7.2 SEC Reports and Other Information. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall, for all periods ending after the date of this Warrant Agreement, file with the SEC and thereupon provide the Warrant Agent and Holders with such annual reports and such information, documents and other reports are as specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed at the times specified for the filing of such information, documents and reports under such Sections, and within 5 Business Days thereafter such information, documents and other reports shall be provided to the Warrant Agent and the Holders. SECTION 7.3 Rule 144A. The Company hereby agrees with each Holder, for so long as any Warrants or Warrant Shares remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to any Holder or beneficial owner of Warrants or Warrant Shares in connection with any sale thereof and any prospective purchaser of such Warrants or Warrant Shares from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Warrants or Warrant Shares pursuant to Rule 144A. SECTION 7.4 Persons Benefitting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the Company, the Warrant Agent and the Holders any right, remedy or claim under or by reason of this agreement or any part hereof. SECTION 7.5 Rights of Holders. Except as expressly contemplated herein, holders of unexercised Warrants are not entitled (i) to receive dividends or other distributions, (ii) to receive notice of or vote at any meeting of the stockholders, (iii) to consent to any action of the stockholders, (iv) to exercise any preemptive right or to receive notice of any other proceedings of the Company or (v) to exercise any other rights whatsoever as stockholders of the Company. 29 34 SECTION 7.6 Amendment. This Agreement may be amended by the parties hereto without the consent of any Holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or making any other provisions with respect to matters or questions arising under this Agreement as the Company and the Warrant Agent may deem necessary or desirable; provided however, that the Company determines, and the Warrant Agent may rely on such determination, that such action shall not affect adversely the rights of the Holders. Any amendment or supplement to this Agreement that has a material adverse effect on the interests of the Holders shall require the written consent of the Holders of a majority of the then outstanding Warrants. The consent of each Holder affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided in Article IV as of the Issue Date of the Warrants). In determining whether the Holders of the required number of Warrants have concurred in any direction, waiver or consent, Warrants owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Warrant Agent shall be protected in relying on any such direction, waiver or consent, only Warrants which the Warrant Agent knows are so owned shall be so disregarded. Also, subject to the foregoing, only Warrants outstanding at the time shall be considered in any such determination. SECTION 7.7 Notices. Any notice or communication shall be in writing and delivered in Person or mailed by first-class mail addressed as follows: if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East Suite 200 Houston, Texas 77032-2949 Attention: Ed Donahue Vice President with a copy to: Gardere & Wynne, L.L.P. 3000 Thanksgiving Tower Dallas, Texas 75201 Attention: C. Robert Butterfield 30 35 if to the Warrant Agent: First Union National Bank 10 State House Square CT 5845 Hartford, CT 06103-3698 Attention: Corporate Trust Administration The Company or the Warrant Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to the Holder at the Holder's address as it appears on the register in which the Company shall provide for the registration of Warrants and Warrant Shares and of transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 7.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF ITSELF, HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF ITSELF, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 7.9 Successors. All agreements of the Company in this Agreement and the Warrant Certificates shall bind its successors. All agreements of the Warrant Agent in this Agreement shall bind its successors. SECTION 7.10 Multiple Originals. The parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Agreement. 31 36 SECTION 7.11 Table of Contents. The table of contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 7.12 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. SECTION 7.13 Further Assurances. From time to time on and after the date hereof, the Company shall deliver or cause to be delivered to the Warrant Agent such further documents and instruments and shall do and cause to be done such further acts as the Warrant Agent shall reasonably request (it being understood that the Warrant Agent shall have no obligation to make such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected hereunder. 32 37 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. TRANSAMERICAN REFINING CORPORATION ---------------------------------------- Name: ----------------------------------- Title: ---------------------------------- FIRST UNION NATIONAL BANK, as Warrant Agent, By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 33 38 EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH TRANSAMERICAN REFINING CORPORATION ("THE COMPANY") ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D),(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO A-1 39 EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. [Unless and until it is exchanged in whole or in part for Warrants in definitive form, this Warrant may not be transferred except as a whole by the depository to a nominee of the depository or by a nominee of the depository to the depository or another nominee of the depository or by the depository or any such nominee to a successor depository or a nominee of such successor depository. The Depository Trust Company ("DTC") (55 Water Street, New York, New York) shall act as the depository until a successor shall be appointed by the Company and the Warrant Agent. Unless this certificate is presented by an authorized representative of DTC to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]* No. [ ] Certificate for Warrants -------- - ----------------------- * To be included only if the Warrant is in global form. A-2 40 WARRANTS TO PURCHASE COMMON STOCK OF TRANSAMERICAN REFINING CORPORATION THIS CERTIFIES THAT, [ ], or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from TransAmerican Refining Corporation, a Texas corporation ("the Company"), initially 13.344257 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock") at the per share exercise price of $0.01 (the "Exercise Price"). This Warrant Certificate shall terminate and become void as of the close of business on June 30, 2003 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares purchasable upon exercise of the Warrants and the Exercise Price per share shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of December 30, 1997 (the "Warrant Agreement"), between the Company and First Union National Bank (the "Warrant Agent," which term includes any successor Warrant Agent under the Warrant Agreement), and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent at First Union National Bank, 10 State House Square CT 5845, Hartford, CT 06103-3698, attention of Corporate Trust Administration. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by presentation of this Warrant Certificate. As provided in the Warrant Agreement and subject to the terms and conditions therein set forth, the Warrants shall be exercisable at any time or from time to time on any Business Day only on or after December 30, 1998; provided, however, that no Warrant shall be exercisable after June 30, 2003. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 5.2 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. A-3 41 Upon any partial exercise of the Warrants, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Market Price for one Warrant Share on the trading day immedi- ately preceding the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of any Warrant. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and nonassessable. The Holder in whose name the Warrant Certificate is registered may be deemed and treated by the Company and the Warrant Agent as the absolute owner of the Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. A-4 42 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. TRANSAMERICAN REFINING CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Attest: - --------------------------- Secretary DATED: Countersigned: FIRST UNION NATIONAL BANK, as Warrant Agent, By: ------------------------ Authorized Signatory A-5 43 SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS* The following exchanges of a part of this Global Warrant for definitive Warrants have been made:
Number of Warrants in Amount of this Global increase/ Warrant Signature of decrease in Number following authorized Date of of Warrants in such increase/ officer of Exchange this Global Warrant decrease Warrant Agent
- -------- * To be included only if the Warrant is in global form. A-6 44 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of TransAmerican Refining Corporation (the "Company") This Certificate relates to Warrants held in definitive form by _______________ (the "Transferor"). The Transferor has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of this Warrant does not require registration under the Securities Act of 1933 (the "Securities Act") because *: [_] Such Warrant is being acquired for the Transferor's own account without transfer. [_] Such Warrant is being transferred to the Company. [_] Such Warrant is being transferred pursuant to an effective registration statement pursuant to the Securities Act. [_] Such Warrant is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. - -------- * Please check applicable box. B-1 45 The Warrant Agent and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ------------------------------------- [INSERT NAME OF TRANSFEROR] By: ---------------------------------- Date: -------------------------------- B-2 EX-4.23 6 REGISTRATION RIGHTS AGREEMENT - SERIES A SUB. NOTE 1 EXHIBIT 4.23 TRANSAMERICAN REFINING CORPORATION $175,000,000 16% Senior Subordinated Notes due 2003 REGISTRATION RIGHTS AGREEMENT December 30, 1997 Jefferies & Company, Inc. 11100 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: TransAmerican Refining Corporation, a Texas corporation (the "Company"), is issuing and selling to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in the Purchase Agreement (as defined below), $175,000,000 aggregate principal amount of its 16% Senior Subordinated Notes due 2003, Series A (the "Notes"). As an inducement to the Purchaser to enter into the Purchase Agreement, the Company agrees with the Purchaser, for the benefit of the holders of the Securities (as defined below) (including, without limitation, the Purchaser), as follows: 1. Definitions. Capitalized terms used but not defined herein have the respective meanings given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" has the meaning given to such term in Section 6. "Agreement" means this Registration Rights Agreement. "Applicable Period" has the meaning given to such term in Section 2(f). "Business Day" means any day other than (i) Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Closing Date" means December 30, 1997. "Company" has the meaning given to such term in the introductory paragraph hereof. "Effectiveness Date" means the 210th day following the Closing Date. "Effectiveness Period" has the meaning given to such term in Section 3(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. 2 "Exchange Offer" has the meaning given to such term in Section 2(a). "Exchange Offer Registration Statement" has the meaning given to such term in Section 2(a). "Exchange Securities" means 16% Senior Subordinated Notes due 2003, Series B, of the Company, identical in all respects to the Notes, except for references to series and restrictive legends. "Filing Date" means the 150th day following the Closing Date. "Holder" means each holder of Registrable Securities. "Indemnified Party" has the meaning given to such term in Section 8(c). "Indemnifying Party" has the meaning given to such term in Section 8(c). "Indenture" means the Indenture dated the date hereof between the Company and First Union National Bank, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time, in accordance with the terms thereof. "Initial Shelf Registration" has the meaning given to such term in Section 3(a). "Losses" has the meaning given to such term in Section 8(a). "NASD" means the National Association of Securities Dealers, Inc. "Notes" has the meaning given to such term in the introductory paragraph hereof. "Participating Broker-Dealer" has the meaning given to such term in Section 2(f). "Person" means an individual, trustee, corporation, partnership, joint stock company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof, union, business association, firm or other entity. "Private Exchange" has the meaning given to such term in Section 2(g). "Private Exchange Securities" has the meaning given to such term in Section 2(g). "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Purchaser" has the meaning given to such term in the introductory paragraph hereof. "Purchase Agreement" means the Purchase Agreement dated as of December 22, 1997 by and between the Company and the Purchaser. 2 3 "Registrable Securities" means (i) Notes, (ii) Private Exchange Securities and (iii) Exchange Securities received in the Exchange Offer that may not be sold without restriction under federal or state securities law. "Registration Default Date" has the meaning given to such term in Section 4(a). "Registration Statement" means any registration statement of the Company that covers any of the Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. "Rule 415" means Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "SEC" means the Securities and Exchange Commission. "Securities" means the Notes, the Private Exchange Securities and the Exchange Securities, collectively. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Shelf Notice" has the meaning given to such term in Section 2(i). "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. "Special Counsel" means counsel chosen by the holders of a majority in aggregate principal amount of Securities. "Subsequent Shelf Registration" has the meaning given to such term in Section 3(b). "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the trustee under the Indenture and, if any, the trustee under any indenture governing the Exchange Securities or the Private Exchange Securities. "Underwritten Registration" or "Underwritten Offering" means a registration in which securities of the Company are sold to an underwriter for reoffering to the public. "Weekly Liquidated Damages Amount" has the meaning given to such term in Section 4(a). 3 4 2. Exchange Offer. (a) The Company shall (i) prepare and file with the SEC promptly after the date hereof, but in no event later than the Filing Date, a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer (the "Exchange Offer") to the Holders to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of Exchange Securities, (ii) use its best efforts to cause the Exchange Offer Registration Statement to become effective as promptly as practicable after the filing thereof, but in no event later than the Effectiveness Date, (iii) keep the Exchange Offer Registration Statement effective until the consummation of the Exchange Offer pursuant to its terms, and (iv) unless the Exchange Offer would not be permitted by a policy of the SEC, commence the Exchange Offer and 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, Exchange Securities in exchange for all Notes tendered prior thereto in the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than (i) that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC and (ii) as otherwise expressed herein. (b) The Exchange Securities shall be issued under, and entitled to the benefits of, the Indenture or a trust indenture that is identical to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA). (c) In connection with the Exchange Offer, the Company shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal that is an exhibit to the Exchange Offer Registration Statement and related documents; (ii) keep the Exchange Offer open for not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depository for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open; and (v) otherwise comply with all laws applicable to the Exchange Offer. (d) As soon as practicable after the close of the Exchange Offer, the Company shall: (i) accept for exchange all Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer; 4 5 (ii) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (iii) cause the Trustee promptly to authenticate and deliver to each Holder of Notes, Exchange Securities equal in aggregate principal amount to the Notes of such Holder so accepted for exchange. (e) Interest on each Exchange Security and Private Exchange Security will accrue (or principal will accrete, as applicable) from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Exchange Security and Private Exchange Security shall bear interest at the rate set forth thereon; provided, that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Notes from time to time during such period. (f) The Company shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," containing a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including (without limitation) all Participating BrokersDealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirement of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Securities; provided that such period shall not exceed 180 days after consummation of the Exchange Offer (as such period may be extended pursuant to the last paragraph of Section 6 (the "Applicable Period"). (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. (h) The Company may require each Holder participating in the Exchange Offer to represent to the Company that at the time of the consummation of the Exchange Offer (i) any Exchange Securities received by such Holder in the Exchange Offer will be acquired in the ordinary course of its business, (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities within the meaning of the Securities Act or resale of the Exchange Securities in violation of the Securities Act, (iii) if such Holder is not a broker-dealer, that it is not engaged in and does not intend to engage in, 5 6 the distribution of the Exchange Securities, (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Notes that were acquired as a result of market-making or other trading activities, that it will deliver a prospectus, as required by law, in connection with any resale of such Exchange Securities and (v) if such Holder is an affiliate of the Company, that it will comply with the registration and prospectus delivery requirements of the Securities Act applicable to it. (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 270 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 (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act) and, in either case contemplated by this clause (v), such Holder notifies the Company within six months of consummation of the Exchange Offer, then the Company 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. 3. Shelf Registration. If a Shelf Notice is required to be delivered pursuant to Section 2(a)(i), (ii), (iii) or (iv), then this Section 3 shall apply to all Registrable Securities. Otherwise, upon consummation of the Exchange Offer in accordance with Section 2, the provisions of this Section 3 shall apply solely with respect to (i) Notes held by any Holder thereof not permitted to participate in the Exchange Offer and (ii) Exchange Securities that are not freely tradeable as contemplated by Section 2(i)(v). (a) Initial Shelf Registration. The Company shall use its best efforts to prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration"). If the Company has not yet filed an Exchange Offer Registration Statement, the Company shall use its best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company shall use its best efforts to file the Initial Shelf Registration within 20 days of the delivery of the Shelf Notice or as promptly as possible following the request of the Purchaser. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by such holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall (i) not permit any securities other than the Registrable Securities to be included in any Shelf Registration, and (ii) use its best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act as promptly as practicable after the filing thereof and to keep the Initial Shelf Registration continuously 6 7 effective under the Securities Act until the date that is 24 months from the Effectiveness Date (subject to extension pursuant to the last paragraph of Section 6) (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration have been sold or (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If any Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Registrable Securities registered thereunder), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration, and any Subsequent Shelf Registration, was previously effective. 4. Liquidated Damages. (a) The Company acknowledges and agrees that the holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if the Company fails to fulfill its obligations hereunder. Accordingly, in the event of such failure, the Company agrees to pay liquidated damages to each Holder under the circumstances and to the extent set forth below: (i) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed with the SEC on or prior to the Filing Date; or (ii) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date; or (iii) if the Company has not accepted for exchange all Notes validly tendered in accordance with the terms of the Exchange Offer within 30 Business Days after the date on which an Exchange Offer Registration Statement is declared effective by the SEC; or (iv) if a Shelf Registration is filed and declared effective by the SEC but thereafter ceases to be effective without being succeeded within 30 days by a Subsequent Shelf Registration filed and declared effective; (each of the foregoing a "Registration Default," and the date on which the Registration Default occurs being referred to herein as a "Registration Default Date"). Upon the occurrence of any Registration Default, the Company shall be obligated to pay, or cause to be paid, in addition to amounts otherwise due under the Indenture 7 8 and the Registrable Securities, as liquidated damages, and not as a penalty, to each holder of a Registrable Security, an additional amount (the "Weekly Liquidated Damages Amount") equal to (A) for each weekly period beginning on the Registration Default Date for the first 120-day period immediately following such Registration Default Date, $0.05 per week per $1,000 principal amount of Registrable Securities held by such holder, and (B) for each weekly period beginning with the first full week after the 120-day period set forth in the foregoing clause (A), $0.15 per week per $1,000 principal amount of Registrable Securities held by such holder; provided that such liquidated damages will, in each case, cease to accrue (subject to the occurrence of another Registration Default) on the date on which all Registration Defaults have been cured. A Registration Default under clause (i) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is filed with the SEC; a Registration Default under clause (ii) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is declared effective by the SEC; a Registration Default under clause (iii) above shall be cured on the earlier of the date (A) the Exchange Offer is consummated with respect to all Notes validly tendered or (B) the Company delivers a Shelf Notice to the Holders; and a Registration Default under clause (iv) above shall be cured on the earlier of (A) the date on which the applicable Shelf Registration is no longer subject to an order suspending the effectiveness thereof or proceedings relating thereto or (B) a Subsequent Shelf Registration is declared effective. (b) The Company shall notify the Trustee within five Business Days after each Registration Default Date. The Company shall pay the liquidated damages due on the Registrable Securities by depositing with the Trustee, in trust, for the benefit of the Holders thereof, by 12:00 noon, New York City time, on or before the semi-annual interest payment date for any of the Registrable Securities, immediately available funds in sums sufficient to pay the liquidated damages then due. The liquidated damages amount due shall be payable on each interest payment date to the Holder entitled to receive the interest payment to be made on such date as set forth in the Indenture. 5. Hold-Back Agreements. The Company agrees (i) without the prior written consent of the Holders of a majority of the aggregate principal amount of the then outstanding Securities, not to effect any public or private sale or distribution (including a sale pursuant to Regulation D under the Securities Act) of any securities the same as or substantially similar to those covered by a Registration Statement filed pursuant to Section 2 or 3, or any securities convertible into or exchangeable or exercisable for such securities, during the 10 days prior to, and during the 90-day period beginning on, (A) the effective date of any Registration Statement filed pursuant to Sections 2 and 3, unless the Holders of a majority in aggregate principal amount of Registrable Securities to be included in such Registration Statement consent or (B) the commencement of an underwritten public distribution of Registrable Securities, where the managing underwriter so requests; and (ii) to cause each holder of such securities that are the same as or substantially similar to Registrable Securities issued at any time after the date of this Agreement (other than securities purchased in a registered public offering) to agree, unless prevented by applicable statute or regulation, not to effect any public sale or distribution of any such securities during such periods, including a sale pursuant to Rule 144 or Rule 144A. 8 9 6. Registration Procedures. In connection with the registration of any Securities pursuant to Sections 2 or 3, the Company shall effect such registrations to permit the sale of such Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Prepare and file with the SEC, as soon as practicable after the date hereof but in any event on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that, if (i) such filing is pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall, if requested, furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, their Special Counsel, each Participating Broker-Dealer, the managing underwriters, if any, and their counsel, a reasonable opportunity to review and make available for inspection by such Persons copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed, such financial and other information and books and records of the Company, and cause the officers, directors and employees of the Company, Company counsel and independent certified public accountants of the Company, to respond to such inquiries, as shall be necessary, in the opinion of respective counsel to such holders, Participating Broker-Dealer and underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company may require each Holder to agree to keep confidential any non-public information relating to the Company received by such Holder and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 6(a)) until such information has been made generally available to the public unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, their Special Counsel, any Participating Broker-Dealer or the managing underwriters, if any, or their counsel shall reasonably object. (b) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture (or other indenture relating to the Registrable Securities) to be qualified under the TIA not later than the effective date of the first Registration Statement; and in connection therewith, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. 9 10 (c) Prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods required hereby; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable thereto with respect to the disposition of all securities covered by such Registration Statement, as so amended, or in such Prospectus, as so supplemented, in accordance with the intended methods of distribution set forth in such Registration Statement or Prospectus as so amended. (d) Furnish to such selling Holders and Participating Broker-Dealers who so request (i) upon the Company's receipt, a copy of the order of the SEC declaring such Registration Statement and any post-effective amendment thereto effective and (ii) such reasonable number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (iii) such reasonable number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such reasonable number of copies of the final Prospectus as filed by the Company pursuant to Rule 424(b) under the Securities Act, in conformity with the requirements of the Securities Act, and (iv) such other documents (including any amendments required to be filed pursuant to clause (c) of this Section), as any such Person may reasonably request. The Company hereby consent to the use of the Prospectus by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment thereto. (e) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the selling Holders of Registrable Securities, their Special Counsel, each Participating Broker-Dealer and the managing underwriters, if any, promptly (but in any event within two Business Days), and confirm such notice in writing, (i) when a Prospectus has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any Prospectus or the initiation of any proceedings for that purpose, (iii) if, at any time when a Prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities, the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 6(n) below cease to be true and correct in any material respect, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the contemplation, initiation or threatening of any proceeding for such purpose, (v) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any 10 11 material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (f) Use its reasonable efforts to register or qualify, and, if applicable, to cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of, Securities to be included in a Registration Statement for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer or the managing underwriters reasonably request in writing; and, if Securities are offered other than through an Underwritten Offering, the Company shall cause its counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 6(f) at the expense of the Company; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Securities covered by the applicable Registration Statement, provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) to take action that would subject it to general service of process in any jurisdiction where it is not so subject or (iii) subject it to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then subject. (g) Use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Securities for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible time. (h) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities, (i) promptly incorporate in a Prospectus or post-effective amendment such information as the managing underwriters, if any, or such Holders reasonably request to be included therein required to comply with any applicable law and (ii) make all required filings of such Prospectus or such post-effective amendment as soon as practicable after the Company has received notification of such matters required by Applicable Law to be incorporated in such Prospectus or post-effective amendment. (i) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, cooperate with the selling Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates 11 12 representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may reasonably request. (j) If (i) a Shelf Registration is filed pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 6(e)(v) or 6(e)(vi) above, as promptly as practicable prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) In good faith endeavor to cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if appropriate, if so requested by the Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement or the managing underwriters, if any. (l) Prior to the effective date of the first Registration Statement relating to the Securities, (i) provide the applicable trustee with printed certificates for the Securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for each of the Securities. (m) Use its best efforts to cause all Securities covered by such Registration Statement to be listed on each securities exchange, if any, on which similar debt securities issued by the Company are then listed. (n) If a Shelf Registration is filed pursuant to Section 3, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities being sold) in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, regardless of whether an underwriting agreement is entered into and regardless of whether the registration is an Underwritten Registration, (i) make such representations and warranties to the Holders and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in Underwritten Offerings, and confirm the same if and when reasonably requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority in aggregate principal amount of the Registrable Securities being sold), addressed to each selling Holder and each of the underwriters, if any, covering the matters 12 13 customarily covered in opinions requested in Underwritten Offerings; (iii) obtain "cold comfort" letters and updates thereof (which letters and updates (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters and each selling Holder, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with Underwritten Offerings and such other matters as reasonably requested by underwriters; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any conditions contained in the underwriting agreement or other similar agreement entered into by the Company. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing on the first day of the fiscal quarter following each fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Upon consummation of an Exchange Offer or Private Exchange, obtain an opinion of counsel to the Company (in form, scope and substance reasonably satisfactory to the Purchaser), addressed to all Holders participating in the Exchange Offer or Private Exchange, as the case may be, to the effect that (i) the Company has duly authorized, executed and delivered the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture, (ii) the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforcement may be subject to (x) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and (y) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law), and (iii) all obligations of the Company under the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture are secured by Liens on the assets securing the obligations of the Company under the Notes. (q) If an Exchange Offer or Private Exchange is to be consummated, upon delivery of the Registrable Securities by such Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall such Registrable Securities be marked as paid or otherwise satisfied. 13 14 (r) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. (s) Use its best efforts to take all other steps reasonably necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities as the Company may, from time to time, reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any seller or Exchange Securities of any Participating Broker-Dealer who unreasonably fails to furnish such information. Each Holder and each Participating Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange Securities of any Participating Broker-Dealer that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 6(e)(ii), 6(e)(iv), 6(e)(v) or 6(e)(vi), such Holder will forthwith discontinue disposition (in the jurisdictions specified in a notice of a 6(e)(iv) event, and elsewhere in a notice of a 6(e)(ii), 6(e)(v) or 6(e)(vi) event) of such Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(j), or until it is advised in writing (the "Advice") by the Company that offers or sales in a particular jurisdiction may be resumed or that the use of the applicable Prospectus may be resumed, as the case may be, and has received copies of any amendments or supplements thereto. If the Company shall give such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of such Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 6(j) or (y) the Advice. 7. Registration Expenses. (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, regardless of whether the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation: (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the Holders are located, in the case of the Exchange Securities, or (y) as provided in Section 6(f), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period); 14 15 (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be); (iii) messenger, telephone, duplication, word processing and delivery expenses incurred by the Company in the performance of its obligations hereunder; (iv) fees and disbursements of counsel for the Company; (v) fees and disbursements of all independent certified public accountants referred to in Section 6(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); (vi) fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD, but only where the need for such a "qualified independent underwriter" arises due to a relationship with the Company; (vii) Securities Act liability insurance, if the Company so desires such insurance; (viii) fees and expenses of all other Persons retained by the Company; internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties); and the expense of any annual audit; and (ix) rating agency fees and the fees and expenses incurred in connection with the listing of the Securities to be registered on any securities exchange. (b) The Company shall reimburse the Holders for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Securities to be included in any Registration Statement and other reasonable and necessary out-of-pocket expenses of the Holders incurred in connection with the registration of the Registrable Securities. 8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless each Holder and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and the officers, directors, partners, employees, representatives and agents of each such Holder, Participating Broker-Dealer and controlling person, to the fullest extent lawful, from 15 16 and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees) and expenses (including, without limitation, reasonable costs and expenses incurred in connection with investigating, preparing, pursuing or defending against any of the foregoing) (collectively, "Losses"), as incurred, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus, or in any amendment or supplement thereto, or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such Losses are based upon information relating to such Holder or Participating Broker-Dealer and furnished in writing to the Company by such Holder or Participating Broker-Dealer expressly for use therein; provided, however, that the Company shall not be liable to any Indemnified Party to the extent that any such losses arise solely out of an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Indemnified Party or related holder of a Registrable Security failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Indemnified Party or the related holder of a Registrable Security to the person asserting the claim from which such Losses arise, (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission, and (iii) the Company has complied with its obligations under Section 6(e). The Company shall also, jointly and severally, indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders or the Participating Broker-Dealer. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus in which a Holder is participating, such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus and shall, without limitation as to time, indemnify and hold harmless the Company, its officers, directors, partners, employees, representatives and agents, each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange Act), and the officers, directors, partners, employees, representatives and agents of such controlling persons, to the fullest extent lawful, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent, but only to the extent, that such untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact is contained in any information so furnished in writing by such holder to the Company expressly for use therein. In no event shall the liability of any selling Holder be greater in amount than the dollar amount of the proceeds (net of payment of 16 17 all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the party or parties from which such indemnity is sought (the "Indemnifying Parties") in writing; provided, that the failure to so notify the Indemnifying Parties shall not relieve the Indemnifying Parties from any obligation or liability except to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal) that the Indemnifying Parties have been prejudiced materially by such failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party, within 20 Business Days after receipt of written notice from such Indemnified Party of such Proceeding, to assume, at its expense, the defense of any such Proceeding, provided, that an Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Party has agreed to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding or shall have failed to employ counsel reasonably satisfactory to such Indemnified Party; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party or any of its affiliates or controlling persons, and such Indemnified Party shall have been advised by counsel that there may be one or more defenses available to such Indemnified Party that are in addition to, or in conflict with, those defenses available to the Indemnifying Party or such affiliate or controlling person (in which case, if such Indemnified Party notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense thereof and the reasonable fees and expenses of such counsel shall be at the expense of the Indemnifying Party; it being understood, however, that, the Indemnifying Party shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Parties). No Indemnifying Party shall be liable for any settlement of any such Proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such Proceeding, each Indemnifying Party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each Indemnified Party from and against any and all Losses by reason of such settlement or judgment. The Indemnifying Party shall not consent to the entry of any judgment against an indemnified party or enter into any settlement that imposes any obligation on any indemnified party that does not include as a term thereof the giving by the claimant or plaintiff to each Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such Proceeding for which such Indemnified Party would be entitled to indemnification hereunder (regardless of whether any Indemnified Party is a party thereto). 17 18 (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms (other than by reason of exceptions provided in this Section 8), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall have a joint and several obligation to contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such statement or omission. The amount paid or payable by an Indemnified Party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any Proceeding, to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 8(a) or 8(b) was available to such party. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an Indemnifying Party that is a selling Holder shall not be required to contribute, in the aggregate, any amount in excess of such Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution Amount" shall equal the excess of (i) the aggregate proceeds received by such Holder pursuant to the sale of such Registrable Securities over (ii) the aggregate amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 9. Rule 144 and Rule 144A. The Company covenants that it shall (a) file the reports required to be filed by it (if so required) under the Securities Act and the Exchange Act in a timely manner and, if at any time any such Person is not required to file such reports, it will, upon the request of any Holder, make publicly available other information necessary to permit sales pursuant to Rule 144 and Rule 144A and (b) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether they have complied with such information and requirements. 10. Underwritten Registrations. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an Underwritten Offering, the investment banker or investment bankers 18 19 and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering. No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 11. Miscellaneous. (a) Remedies. In the event of a breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Purchaser, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not entered into, as of the date hereof, and shall not enter into, after the date of this Agreement, any agreement with respect to any of its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Registrable Securities; provided, that Sections 6(a) and 8 shall not be amended, modified or supplemented, and waivers or consents to departures from this proviso may not be given, unless the Company has obtained the written consent of each Holder affected thereby. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, certified first-class mail, return receipt requested, next-day air courier or facsimile: (i) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 11(d), which address initially is, with respect to each Holder, the address of such holder maintained by the 19 20 Registrar under the Indenture, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, telecopy number (213) 687-5600, Attention: Rodrigo A. Guerra, Jr.; and (ii) if to the Company, at 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas 77032-2949, telecopy number (281) 986-8865, Attention: President, with a copy to Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, Dallas, Texas 75201, telecopy number (214) 999-4667, Attention: C. Robert Butterfield; and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 11(d). All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT 20 21 FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company in respect of securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (k) Attorneys' Fees. In any Proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the courts, shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. (l) Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than Holders deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage. [Signature Page Follows] 21 22 REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: ------------------------------- Name: ---------------------------- Title: ---------------------------- Accepted and Agreed to: JEFFERIES & COMPANY, INC. By: ------------------------- Name: ---------------------- Title: ---------------------- EX-4.24 7 SECURITYHOLDERS' AND REGISTRATION RIGHTS AGMT. 1 EXHIBIT 4.24 TRANSAMERICAN REFINING CORPORATION SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT December 30, 1997 JEFFERIES & COMPANY, INC. 11100 Santa Monica Blvd. 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: TransAmerican Refining Corporation (the "Company"), a Texas corporation, proposes to issue and sell to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in a purchase agreement, dated as of December 22, 1997 (the "Purchase Agreement"), between the Purchaser and the Company, 175,000 Units (as defined below), consisting of (i) $175,000,000 aggregate principal amount of 16% Senior Subordinated Notes due 2003, Series A (the "Series A Notes") and (ii) 175,000 warrants (the "Warrants") to purchase initially 2,335,245 number of shares (the "Warrant Shares") of the Issuer's common stock, $0.01 par value per share (together with any securities issued in exchange therefor or in substitution thereof, the "Common Stock"), at an exercise price of $0.01 per share. The Series A Notes will be issued pursuant to an indenture (the "Indenture"), to be dated as of December 30, 1997, between the Issuer and First Union National Bank, as trustee (the "Trustee"). The Warrants are to be issued pursuant to a warrant agreement (the "Warrant Agreement"), to be dated as of December 30, 1997, between the Issuer and the warrant agent named therein (the "Warrant Agent"). The Series A Notes and the Warrants will be sold in Units, each Unit consisting of (i) one Series A Note in the principal amount of $1000 and (ii) one Warrant to purchase initially 13.344257 Warrant Shares at an exercise price of $0.01 per share (the "Units"). Unless the context requires otherwise, references herein to "Securities" shall be deemed to include the Units, the Series A Notes (as defined below), Warrants, and Warrant Shares upon initial issuance to the Purchaser as well as following separation. As an inducement to the Purchaser to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchaser thereunder, the Company agrees with the Purchaser, (i) for the benefit of the Purchaser and (ii) for the benefit of the holders from time to time of the Warrants and the Warrant Shares, as follows: 2 1. Definitions. Capitalized terms used but not defined herein shall have the respective meaning given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified person, means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day other than (i) Saturday or Sunday or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "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. "Disqualified Capital Stock" means, with respect to any Person, any Capital Stock of such person or its subsidiaries that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such Person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to November 15, 2004. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" means the Persons with a beneficial interest in the Warrant Shares, the Old TARC Warrant Shares or other Registrable Securities. "Initiating Holders" means one or more Holders of the Requisite Securities. "Officer's Certificate" means a certificate signed by any one of the Chairman, any Vice Chairman, any Chief Executive Officer, any Senior Vice President or the Chief Financial Officer. 2 3 "Old Warrants" means the common stock purchase warrants of the Company issued pursuant to the warrant agreement, dated as of February 23, 1995, between the Company and First Union National Bank, as successor warrant agent, as amended on the date hereof. "Old Warrant Shares" means the shares of Common Stock of the Company underlying the Old Warrants. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Person" means an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. "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. "Purchaser Warrant Shares" means the shares of Common Stock of the Company underlying the common stock purchase warrants of the Company issued to the Purchaser pursuant to the Solicitation Agent Agreement (as defined in the Purchase Agreement). "Registrable Securities" means any of (i) the Warrant Shares (whether or not the related Warrants have been exercised) or Purchaser Warrant Shares (whether or not the related warrants have been issued) and (ii) any other securities issued or issuable with respect to any Warrant Shares or Purchaser Warrant Shares by way of stock dividends or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Registration Statement, (ii) such securities are eligible for sale to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under the Securities Act, (iii) such securities shall have been otherwise transferred by such Holder thereof and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require 3 4 registration or qualification under the Securities Act or any similar state law then in force or (iv) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), preparing, printing, filing, duplicating and distributing the Registration Statement and the related prospectus, the cost of printing stock certificates, the cost and charges of any transfer agent, rating agency fees, printing expenses, messenger, telephone and delivery expenses, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants, the fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Selling Holders), reasonable fees and expenses of one counsel for the Holders and other reasonable out-of-pocket expenses of Holders. "Registration Statement" shall mean any appropriate registration statement of the Company filed with the SEC pursuant to the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Securities" shall mean a number of Registrable Securities equal to not less than 25% of the Registrable Securities held in the aggregate by all Holders. "Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 144A" means Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 174" means Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. 4 5 "Rule 415" means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 424" means Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended form time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Selling Holder" shall mean a Holder who is selling Registrable Securities in accordance with the provisions of this Agreement. "Special Counsel" means any special counsel to the Holders, for which Holders will be reimbursed pursuant to this Agreement. 2. Demand Registration. (a) From time to time after 180 days following the completion by the Company of a Public Equity Offering, one or more Initiating Holders may request in writing that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and shall specify the intended method of disposition thereof (the "Demand Request"). The Company will give written notice of the Demand Request to all registered holders of Registrable Securi- ties within fifteen (15) days of receipt thereof. Within 120 days of receipt of the Demand Request the Company will, subject to the terms of this Agreement, file a Registration Statement and use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 20 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities); and (iii) all shares of securities which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2, 5 6 all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional securities so to be registered. (b) Registrations under this Section (each, a "Demand Registration") shall be on such appropriate registration form of the SEC (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. (c) The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2. The Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, in connection with each Registration Statement requested under this Section 2, which costs shall be allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration, on the basis of the respective amounts of the Registrable Securities then being registered on their behalf. (d) The Holders shall be entitled to request two (2) registrations pursuant to this Section 2. A Registration Statement requested pursuant to this Section 2 shall not be deemed to have been effected (i) unless a Registration Statement with respect thereto has been declared effective by the SEC and (ii) the Company has complied in a timely manner and in all material respects with all of its obligations under this Agreement; provided, (i) if, after such Registration Statement has become effective, the offering of Warrant Shares pursuant to such Registration Statement is or becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Warrant Shares under such Registration Statement for any reason, other than by reason of some act or omission by any Holder participating in such registration, and does not become effective within a reasonable period of time thereafter, such period not to exceed 60 days from the date of such stop order, injunction, or other governmental order or requirement, (ii) the Registration Statement does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Selling Holders of all of the Registrable Securities covered thereby or (iii) if the Selling Holders are not able to sell at least 80% of the Registrable Securities to be included therein, less any Registrable Securities withdrawn or excluded from such Demand Registration in accordance with the provisions hereof, then, in each case, such Registration Statement shall be deemed not to have been effected. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not in effect shall be excluded. The Holders shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. (e) If a requested registration pursuant to this Section 2 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each Holder requesting registration) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not 6 7 Registrable Securities) is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the Holders, pro rata among such holders requesting such registration on the basis of the number of such securities requested to be included by such Holders and (ii) second, securities held by other Persons, including the Company. 3. Piggy-Back Registration. (a) If at any time after the Company has completed a Public Equity Offering the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of the holders of any class of its Common Stock in a firmly underwritten Public Equity Offering (other than (i) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a Registration Statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event fewer than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Warrant Shares as each such Holder may request in writing within 30 days after receipt of such written notice from the Company (which request shall specify the Warrant Shares intended to be disposed of by such Selling Holder) (a "Piggy-Back Registration"). Upon the written request of any such Holder made within 30 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement that covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 3 shall relieve the Company of its obligation 7 8 to effect any registration upon request under Section 2, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2. (b) The Company shall use its best efforts to keep such Piggy- Back Registration continuously effective under the Securities Act until the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Warrant Shares covered thereby. The Company shall use its reasonable efforts to cause the managing underwriter or underwriters of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included in the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to these provisions by giving written notice to the Company of its request to withdraw. (c) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3 and the Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, relating to the sale of such Selling Holders' Registrable Securities pursuant to this Section 3, such costs being allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration, on the basis of the respective amounts of Registrable Securities then being registered on their behalf. (d) Priority in Piggy-Back Registrations. If a registration pursuant to this Section 3 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, the Company will, if requested by any Holder and subject to the provisions of this Section 3, use its reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. Notwithstanding anything to the contrary, if the managing underwriter of such underwritten offering shall, in writing, inform the Holders requesting such registration and the holders of any of the Company's other securities which shall have exercised registration rights in respect of such underwritten offering of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then, in such event, (x) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities that the Company proposes to register, and (ii) second, the securities that have been requested to be included in such registration by Holders (pro rata on the amount of securities sought to be registered by such Holders), and (iii) third, the securities that have been requested to be included in such registration by Persons (other than Holders) entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata on the amount of securities sought to be registered by such Persons); and (y) in cases not initially involving the registration for sale of 8 9 securities for the Company's own account, securities shall be registered in such offering as follows: (i) first, the securities of any person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (provided that if such person is a Holder, there shall be no priority as among Holders and Warrant Shares sought to be included by Holders shall be included pro rata based on the amount of securities sought to be registered by such persons), (ii) second, the securities that have been requested to be included in such registration by Holders (pro rata on the amount of securities sought to be registered by such Holders), (iii) third, securities of other persons entitled to exercise "piggy- back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such persons) and (iv) fourth, the securities which the Company proposes to register. 4. Registration Procedures. In connection with any Demand Registration or Piggy-back Registration, the Company shall: (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), if requested, furnish to the Holders, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, their Special Counsel and such underwriters, if any, cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act, and shall use reasonable efforts to reflect in each such document filed pursuant to a Demand Registration, when so filed with the SEC, such reasonable comments as the Holders, their Special Counsel and the managing underwriters, if any, may propose in writing; provided, however, that the Company shall not be deemed to have kept a Registration Statement effective during the applicable period if it voluntarily takes or fails to take any action that results in Selling Holders covered thereby not being able to sell such Registrable Securities pursuant to Federal securities laws during that period; provided, further, the Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto in connection with a Demand Registration to which the Holders of a majority of the Registrable Securities, their Special Counsel, or the managing underwriters, if any, shall reasonably object on a timely basis; (b) Take such action as may be necessary so that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated herein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material 9 10 fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (c) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (d) Notify the Selling Holders, their Special Counsel and the managing underwriters, if any, promptly (and in the case of an event specified by clause (i)(A) of this paragraph in no event fewer than two Business Days prior to such filing), and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of either the Company contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (vii) of the Company's reasonable determination that a post- effective amendment to such Registration Statement would be appropriate; 10 11 (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; (f) If requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold in connection with such offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders reasonably agree should be included therein, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement; provided, however, that the Company shall not be required to take any action pursuant to this Section 4(f) that would, in the opinion of counsel for the Company, violate applicable law; (g) Furnish to each Selling Holder, their Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by each Holder (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (h) Deliver to each Selling Holder, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (i) Prior to any public offering of Registrable Securities, use its reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or quali- fication (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing, or, in the event of a non-underwritten offering, as the Holders of a majority of such Registrable Securities being sold may request; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform blue sky investigations and file registrations and qualifications required to be filed pursuant to this Section 4(i); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other 11 12 acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (j) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the DTC and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may request at least two Business Days prior to any sale of Registrable Securities; (k) Use its best efforts to cause the offering of the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required as a consequence of the nature of such Selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; provided, however, that the Company shall not be required to register the Registrable Securities in any jurisdiction that would subject them to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject or to require the Company to qualify to do business in any jurisdiction where it is not then so qualified; (l) Upon the occurrence of any event contemplated by Section 4(d)(vi) or 4(d)(vii), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders of the occurrence of any event contemplated by paragraph 4(d)(vi) or 4(d)(vii) above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made; (m) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, as applicable, to (i) provide the registrar for the Registrable Securities with certificates for such securities in a form eligible for deposit with the DTC and (ii) provide a CUSIP number for the Registrable Securities; 12 13 (n) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by it), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and Special Counsel to the Holders of the Registrable Securities being sold), addressed to each Selling Holder and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and underwriters (iii) obtain customary "comfort" letters and updates thereof (including, if such registration includes an underwritten public offer- ing, a "bring down" comfort letter dated the date of the closing under the underwriting agreement) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business which may hereafter be acquired by the Company for which financial statements and financial data are required to be included in the Registration Statement), addressed (where reasonably possible) to each Selling Holder and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and such other matters as reasonably required by the managing underwriter or underwriters and as permitted by the Statement of Auditing Standards No. 72; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Selling Holders and the underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate number of Registrable Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate number of the Registrable Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause 4(n)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (o) Make available for inspection by a representative of the Selling Holders, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, consultant or accountant retained by such Selling Holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent 13 14 corporate documents and properties of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company, and cause the officers, directors, agents and employees of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is avail- able to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration, provided, however, the Company may first require that such Persons agree to keep confidential any non-public information relating to the Company received by such Person and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 4(o)) until such information has been made generally available to the public unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors); (p) Use its best efforts to cause the Warrant Shares issuable upon exercise of the Warrants to be quoted or listed on any exchange upon which the Company's Common Stock is then quoted or listed; (q) Comply with all applicable rules and regulations of the SEC and make generally available to their security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act), no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and (r) Use its best efforts to take all other steps necessary to effect the registration, offering and sale of the Registrable Securities covered by the Registration Statement. The Company may require each Selling Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the applicable Registration Statement and the Company may exclude from such registration the Registrable Securities of any Selling Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a 14 15 recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(v) or 4(d)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the 90-day period referred to in Section 2(d) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 5. Certain Limitations, Conditions and Qualifications to the Company's Obligations Under Sections 2 and 3. The obligations of the Company described in Sections 2 and 3 of this Agreement are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing or effectiveness of, or suspend the rights of any Holder to make sales pursuant to, any Registration Statement otherwise required to be prepared, filed and made and kept effective by it under the registration covenants described in Sections 2 hereof; provided, however, that the duration of such postponement or suspension may not exceed the earlier to occur of (A) 30 days after the cessation of the circumstances described in the next sentence of this paragraph on which such postponement or suspension is based or (B) 120 days after the date of the determination of the Board of Directors of the Company referred to in the next sentence, and the duration of such postponement or suspension shall be excluded from the calculation of the 90-day period described in Section 2(d) hereof. Such postponement or suspension may only be effected if the Board of Directors of the Company determines in good faith that the filing or effectiveness of, or sales pursuant to, such registration statement would materially impede, delay or interfere with any financing, offer or sale of securities, acquisition, corporate reorganization 15 16 or other significant transaction involving the Company or any of its affiliates (whether or not planned, proposed or authorized prior to the exercise of demand registration rights hereunder or any other registration rights agreement) or require disclosure of material information which the Company has a bona fide business purpose for preserving as confidential. If the Company shall so postpone the filing or effectiveness of, or suspend the rights of any Holders to make sales pursuant to, a Registration Statement it shall, as promptly as possible, notify any Selling Holders of such determination, and the Selling Holders shall (y) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Selling Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice, or (z) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted for purposes of the two Demand Registrations referred to in Section 2(d) hereof. (b) The Company shall not be required by this Agreement to include securities in a Registration Statement relating to a Piggy-back Registration above if (i) in the written opinion of counsel to the Company, addressed to the Holders seeking registration and delivered to them, the Holders of such securities seeking registration would be free to sell all such securities within the current calendar quarter, without registration, under Rule 144 under the Securities Act, which opinion may be based in part upon the representation by the Holders of such securities seeking registration, which registration shall not be unreasonably withheld, that each such Holder is not an affiliate of the Company within the meaning of the Securities Act, and (ii) all requirements under the Securities Act for effecting such sales are satisfied at such time. (c) The Company's obligations shall be subject to the obligations of the Selling Holders to furnish all information and materials and not to take any and all actions as may be required under Federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. 6. Indemnification (a) The Company agrees to indemnify and hold harmless each of (i) the Purchaser, (ii) each Holder (iii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (i) being hereinafter referred to as a "controlling person"), and (iv) the respective officers, directors, partners, employees, representatives and agents of the Purchaser, each Holder, 16 17 each broker-dealer participating in an offering subject to this Agreement or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Person"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of Prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing indemnity with respect to any preliminary Prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all fees and expenses; provided, however, that the failure to so notify the Company shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Company, (ii) the Company shall have failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and the Company and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Company shall not, in 17 18 connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred). The Company shall not be liable for any settlement of any such action effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Indemnified Person from and against any loss or liability by reason of such settlement. The Company shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement in which a Holder is participating, such Holder agrees, severally and not jointly, to indemnify and hold harmless each of the Company, its directors, its officers and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Indemnified Person but only with reference to information relating to such Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in such Registration Statement or any Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. In case any action shall be brought against the Company, any of their directors, any such officer or any person controlling the Company based on such Registration Statement and in respect of which indemnity may be sought against any Indemnified Person, the Indemnified Person shall have the rights and duties given to the Company (except that if the Company shall have assumed the defense thereof, such Indemnified Person shall not be required to do so, but may employ separate counsel therein and participate in defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnified Person), and the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the Indemnified Person, by Section 6(b) hereof. (d) If the indemnification provided for in this Section 6 is unavailable to an Indemnified Person in respect of any losses, claims, damages, liabilities or judgments referred to therein, then the Company, in lieu of indemnifying such Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Person on the other hand from the offering of the Warrant Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and each such Indemnified Person in connection with the statements or omissions (or alleged statements or omissions) which resulted in such losses, claims, damages, liabilities or judgments, as well as any 18 19 other relevant equitable considerations. The relative fault of the Company and each such Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Indemnified Person were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an the Company as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the total net profit received by it in connection with the sale of the Warrant Shares pursuant to this Agreement exceeds the amount of any damages which such Indemnified Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 6 will be in addition to any liability which the Company may otherwise have to the Indemnified Persons referred to above. The Indemnified Persons' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective amount of Warrant Shares included in any such Registration Statement by each Indemnified Person and not joint. 7. Rules 144 and 144A The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit, sales of its Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations If any of the Registrable Securities covered by any Registration Statement pursuant to a Demand Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by 19 20 the Holders of a majority in aggregate number of such Registrable Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 9. Miscellaneous (a) Remedies. In the event of a breach by the Company, or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any person the right to request it to register any of its equity securities under the Securities Act unless the rights so granted are subject in all respects to the prior rights of the Holders set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. (c) [intentionally omitted]. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the written consent of the Holders of a majority of the then outstanding Registrable Securities is obtained; provided, however, that, for the purposes of this Agreement, Registrable Securities that are owned, directly or indirectly, by the Company or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate number of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. 20 21 (e) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, or facsimile: (i) if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway, Suite 320 Houston, Texas 77032-2949 Fax: (281) 986-8865 Attention: Ed Donahue with a copy to: Gardere & Wynne, L.L.P. 3000 Thanksgiving Tower Dallas, Texas 75201 Fax: (214) 999-4667 Attention: C. Robert Butterfield (ii) if to the Purchaser: Jefferies & Company, Inc. 11100 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Fax: (310) 575-5299 Attention: Jerry M. Gluck with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue 34th Floor Los Angeles, California 90071 Fax: (213) 687-5600 Attention: Rod A. Guerra (iii) if to any other person who is then a registered Holder, to the address of such Holder as it appears in the share register of the Company. 21 22 Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Notwithstanding the foregoing, no transferee shall have any of the rights granted under this Agreement until such transferee shall acknowledge its rights and obligations hereunder by a signed written statement of such transferee's acceptance of such rights and obligations. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (i) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 22 23 (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (k) Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (l) Entire Agreement. This Agreement, together with the Purchase Agreement, the Warrant Agreement, and the Indenture, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, the Purchase Agreement, the Warrant Agreement, and the Indenture supersede all prior agreements and understandings between the parties with respect to such subject matter. 23 24 Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, TRANSAMERICAN REFINING CORPORATION By: --------------------------------- Name: ---------------------------- Title: --------------------------- The foregoing Securityholders' and Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. JEFFERIES & COMPANY, INC. By: ------------------------------------------- Name: ------------------------------------- Title: ------------------------------------ EX-4.25 8 3RD SUP. INDENTURE DATED 1/16/98 1 EXHIBIT 4.25 ------------------------------------------------------------- TRANSAMERICAN REFINING CORPORATION Issuer and TRANSAMERICAN ENERGY CORPORATION Guarantor and FIRST UNION NATIONAL BANK, formerly known as FIRST FIDELITY BANK, NATIONAL ASSOCIATION Trustee ------------------------- THIRD SUPPLEMENTAL INDENTURE effective as of January 16, 1998 ------------------------- $340,000,000 Guaranteed First Mortgage Discount Notes due 2002 and $100,000,000 Guaranteed First Mortgage Notes due 2002 ------------------------------------------------------------- 2 THIS THIRD SUPPLEMENTAL INDENTURE, effective as of January 16, 1998 (this "Supplemental Indenture"), is made and entered into by and among TRANSAMERICAN REFINING CORPORATION, a Texas corporation (the "Company"), TRANSAMERICAN ENERGY CORPORATION, a Delaware corporation ("TEC), and FIRST UNION NATIONAL BANK, formerly known as FIRST FIDELITY BANK, NATIONAL ASSOCIATION (the "Trustee"), under an Indenture dated as of February 15, 1995, by and among the Company, TEC and the Trustee, as amended and supplemented by a First Supplemental Indenture dated as of February 24, 1997, among the Company, TEC and the Trustee, and as further amended and supplemented by a Second Supplemental Indenture, dated as of June 13, 1997, among the Company, TEC and the Trustee (as so amended and supplemented, the "Current Indenture"). All capitalized terms used in this Supplemental Indenture that are defined in the Current Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined in this Supplemental Indenture or the context clearly requires otherwise. WHEREAS, Section 9.1 of the Current Indenture provides, among other things, that the Company, when authorized by Board Resolutions, and the Trustee, at any time and from time to time, may, without the necessity for consent of any Holder, enter into one or more indenture supplements, in form satisfactory to the Trustee, to cure any ambiguity, defect or inconsistency, or to make any other provisions with respect to matters or questions arising under the provisions of the Indenture, which shall not be inconsistent with the provisions of the Indenture, provided such action shall not adversely affect the interests of any Holder in any respect; and WHEREAS, the Board of Directors of the Company has adopted resolutions authorizing and approving the amendment of certain provisions of the Indenture, as more particularly described in this Supplemental Indenture, and the Company, the Guarantor and the Trustee are executing and delivering this Supplemental Indenture in order to provide for such amendments; and WHEREAS, the Company and TEC have determined that the amendments described below are necessary to permit the Company to comply with the requirements of Section 8.1 of the Indenture in connection with its proposed payment and discharge of the entire Debt on the Securities as permitted therein and that such amendments do not adversely affect the interests of any Holder in any respect; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Supplemental Indenture hereby agree as follows: ARTICLE I AMENDMENTS TO CURRENT INDENTURE Section 1.01. Section 8.1(c). Section 8.1(c) of the Current Indenture is hereby amended to read in its entirety as follows: "(c) No Default or Event of Default relating to clauses (e) or (f) of Section 6.1 shall have occurred or be continuing on the date of such deposit or shall occur on or before the 91st day (or one day after such greater period of time in which any such deposit of trust funds may 2 3 remain subject to set aside or avoidance under bankruptcy or insolvency laws) after the date of such deposit, and such deposit will not result in a Default or Event of Default under this Indenture or a breach or violation of, or constitute a default under, any other instrument to which the Company or any Subsidiary of the Company is a party or by which it or its property is bound;" Section 1.02. Section 8.1(f). Section 8.1(f) of the Current Indenture is hereby amended to read in its entirety as follows: "(f) After the passage of 90 days (or any greater period of time in which any such deposit of trust funds may remain subject to set aside or avoidance under Bankruptcy Laws insofar as those laws apply to the Company), following the irrevocable deposit of the trust funds, such funds will not be subject to set aside or avoidance under any Bankruptcy Laws affecting creditors' rights generally;" Section 1.03. Section 8.1(g). Section 8.1(g) of the Current Indenture is hereby amended to read in its entirety as follows: "(g) Holders of the Notes will have a valid, perfected and unavoidable (under applicable bankruptcy or insolvency laws), subject to the passage of time referred to in clause (f) above, first-priority security interest in all of the Company's right, title and interest in the trust funds; and" ARTICLE II GENERAL PROVISIONS Section 2.01. Ratification of Indenture. The Current Indenture is in all respects acknowledged, ratified and confirmed, and shall continue in full force and effect in accordance with the terms thereof and as supplemented by this Supplemental Indenture. The Current Indenture and this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. Section 2.02. Certificate and Opinion as to Conditions Precedent. Simultaneously with and as a condition to the execution of this Supplemental Indenture, the Company is delivering to the Trustee (a) an Officer's Certificate in the form attached hereto as Exhibit A; and (b) an Opinion of Counsel covering the matters described in Exhibit B hereto. Section 2.03. 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 2.04. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 3 4 Section 2.05. Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute the same instrument. IN WITNESS WHEREOF, the parties to this Supplemental Indenture have caused this Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, effective on this ____ day of ___________________, 1998. TRANSAMERICAN REFINING CORPORATION Attest: By: ------------------------- ---------------------------------- John R. Stanley, President and Chief Executive Officer TRANSAMERICAN ENERGY CORPORATION Attest: By: ------------------------- ---------------------------------- John R. Stanley, President and Chief Executive Officer FIRST UNION NATIONAL BANK, formerly known as FIRST FIDELITY BANK, NATIONAL ASSOCIATION, Trustee Attest: By: ------------------------- ---------------------------------- 4 EX-4.26 9 IRREVOCABLE TRUST AND SECURITY AGREEMENT 1 EXHIBIT 4.26 ================================================================================ IRREVOCABLE TRUST AND SECURITY AGREEMENT AMONG TRANSAMERICAN REFINING CORPORATION, TRANSAMERICAN ENERGY CORPORATION AND FIRST UNION NATIONAL BANK, FORMERLY KNOWN AS FIRST FIDELITY BANK, NATIONAL ASSOCIATION AS TRUSTEE ------------------- DATED AS OF JANUARY 16, 1998 ================================================================================ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.02. Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II INITIAL TRANSFER TO TRUST FUND Section 2.01. Transfer to the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.02. Execution of Funding Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.03. Sufficiency of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE III CREATION AND OPERATION OF TRUST FUND Section 3.01. Establishment of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.02. Payment of Principal and Interest; Redemption of Notes . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.03. Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.04. Return of Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV INVESTMENTS Section 4.01. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.02. Security for Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE V SECURITY INTEREST Section 5.01. Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.02. Security for Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.03. Financing Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 5.04. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
i 3 ARTICLE VI RECORDS AND REPORTS Section 6.01. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.02. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE VII CONCERNING THE TRUSTEE Section 7.01. Notices to be Given . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 7.02. Moneys to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 7.03. Concerning Compensation and Expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 7.04. Responsibility of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 7.05. Reliance by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 7.06. Resolution of Disagreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE VIII MISCELLANEOUS Section 8.01. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8.02. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8.03. Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8.04. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8.05. Texas Law Governs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 8.06. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 8.07. Performance on Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 8.08. Inability of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ii 4 IRREVOCABLE TRUST AND SECURITY AGREEMENT This Irrevocable Trust and Security Agreement, dated as of January 16, 1998 (this "Agreement"), is among TransAmerican Refining Corporation, a Texas corporation (the "Company"), TransAmerican Energy Corporation, a Delaware corporation ("TEC"), and First Union National Bank, formerly known as First Fidelity National Association, as trustee (the "Trustee") under an Indenture dated as of February 15, 1995, by and among the Company, TEC and the Trustee, as amended and supplemented by a First Supplemental Indenture dated as of February 24, 1997, among the Company, TEC and the Trustee, a Second Supplemental Indenture, dated as of June 13, 1997, among the Company, TEC and the Trustee, and a Third Supplemental Indenture, dated as of January 16, 1998 among the Company, TEC and the Trustee (as so amended and supplemented, the "Indenture"). W I T N E S S E T H: WHEREAS, the Company has previously issued its Guaranteed First Mortgage Discount Notes due 2002 in the aggregate principal amount of $340,000,000 (the "Discount Notes") and Guaranteed First Mortgage Notes due 2002 in the aggregate principal amount of $100,000,000 (the "Mortgage Notes" and, together with the Discount Notes, the "1995 Notes"), pursuant to the terms of the Indenture; and WHEREAS, the Company offered to purchase the 1995 Notes pursuant to an Offer to Purchase and Consent Solicitation dated May 15, 1997 and the supplements thereto dated May 30, 1997 and June 6, 1997 (the "Tender Offer"); and WHEREAS, pursuant to the Tender Offer, $92,235,000 principal amount of Mortgage Notes and $295,777,013 accreted value of Discount Notes were tendered to the Company and canceled; and WHEREAS, by Notice dated January 14, 1998, the Company has called for redemption on February 17, 1998 $1,580,000 principal amount of Mortgage Notes and $5,377,000 principal amount of Discount Notes; and WHEREAS, the Company intends to defease the Discount Notes that remain outstanding after the foregoing redemption (the "Remaining Discount Notes") and the Mortgage Notes that remain outstanding after the foregoing redemption (the "Remaining Mortgage Notes" and, together with the Remaining Discount Notes, the "Remaining 1995 Notes"); and WHEREAS, the Company intends to redeem the Remaining 1995 Notes on February 15, 1999 (the "Final Redemption Date"); and 5 WHEREAS, the Indenture provides that if U.S. Legal Tender (as defined in the Indenture), U.S. Government Obligations (as defined in the Indenture) or a combination thereof in an amount sufficient to provide the entire amount necessary for redemption of the Remaining 1995 Notes shall have been set aside in trust with the Trustee as provided in the Indenture, and provisions satisfactory to the Trustee shall have been made for the giving of notice of redemption, from and after the date such assets are set aside in trust and the Trustee receives a certification of independent certified public accountants, an officers' certificate and an opinion of counsel, the Debt (as defined in the Indenture) shall be deemed paid and the Company shall be released from all liability under the Indenture other than as set forth in Sections 8.3 and 8.7 of the Indenture; and WHEREAS, the Company wishes to deposit or cause to be deposited cash in the Trust Fund (as defined below) created pursuant to this Agreement in order to cause the Remaining 1995 Notes to be defeased and redeemed under the Indenture; and WHEREAS, the cash to be deposited, together with interest thereon, in the Trust Fund, in the opinion of Coopers & Lybrand L.L.P., is sufficient to pay interest on the Remaining 1995 Notes as it accrues and becomes payable and the principal of the Remaining 1995 Notes when they are called for redemption on the Final Redemption Date; and WHEREAS, in order to facilitate the receipt and transfer of the cash to be deposited, the Company desires to establish a trust at the principal corporate trust office of the Trustee (the "Trust Fund"); NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, the sufficiency of which are hereby acknowledged, and in order to secure the full and timely payment of principal of and interest on the Remaining 1995 Notes which are to be defeased and redeemed, the Company, TEC and the Trustee mutually undertake, promise, and agree for themselves and their respective representatives and successors, as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.01. Definitions. All capitalized terms used in this Agreement that are defined in the Indenture have the meanings assigned to them therein, except to the extent such terms are defined in this Agreement or the context clearly requires otherwise. Section 1.02. Interpretations. The titles and headings of the articles and sections of this Agreement have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This 2 6 Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of defeasing and redeeming the Remaining 1995 Notes in accordance with applicable law. Except where the context otherwise requires herein, words imparting the singular number shall include the plural number and vice versa. Reference to any instrument or document shall include such instrument or document as the same may be amended or supplemented from time to time. Reference to any party to any instrument or document shall include any successor or assign of such party. ARTICLE II INITIAL TRANSFER TO TRUST FUND Section 2.01. Transfer to the Trust Fund. The Company shall transfer, or cause to be transferred, $9,754,694.34 in cash constituting U.S. Legal Tender (the "Trust Deposit") to the Trustee to be held in trust for the benefit of the Holders from time to time of the Remaining 1995 Notes. Section 2.02. Execution of Funding Certificate. Upon the receipt by the Trustee of (i) the Trust Deposit, (ii) the payment of fees and all other sums payable by the Company under the Indenture and described in Exhibit "A" hereto and (iii) a final report prepared by Coopers & Lybrand, L.L.P., dated January 15, 1998, regarding the sufficiency of the Trust Deposit and the Permitted Investments (as defined in Section 4.01 hereof) made therewith to pay amounts which will become due on the Remaining 1995 Notes, which is incorporated herein for all purposes (the "Report"), the Trustee shall attach to this Trust Agreement the Trust Funding Certificate (the form of which is attached as Exhibit "B" hereto) fully executed by the Trustee. Section 2.03. Sufficiency of Trust Fund. The Company represents that the Trust Deposit and the Permitted Investments made therewith, together with the proceeds thereof, will provide, not later than one day before each of (i) the Interest Payment Dates and (ii) the Final Redemption Date, sufficient moneys for transfer to the Paying Agent in the amounts required to pay the accrued interest on the Remaining 1995 Notes and the principal of the Remaining 1995 Notes on the Final Redemption Date, all as more fully set forth in the Report attached hereto. If, at any time and for any reason, the cash balances on deposit in the Trust Fund shall be insufficient to transfer the amounts required by the Paying Agent to make the payments set forth in Section 3.02 hereof, the Company shall timely deposit into the Trust Fund, from lawfully available funds, additional funds in the amounts required to make such payments. Notice of any such insufficiency shall be given promptly as hereinafter provided, but the Trustee shall not in any manner be responsible for any insufficiency of funds in the Trust Fund or the Company's failure to make additional deposits thereto. 3 7 ARTICLE III CREATION AND OPERATION OF TRUST FUND Section 3.01. Establishment of Trust Fund. The Trustee shall create on its books a special trust fund to be known as the "TransAmerican Notes due 2002 Trust Fund" (the "Trust Fund"). Upon receipt by the Trustee of the Trust Deposit, the Trustee shall deposit the Trust Deposit in the Trust Fund. Section 3.02. Payment of Principal and Interest; Redemption of Notes. (a) On or prior to February 15, 1998, the Trustee is hereby irrevocably instructed to transfer to the Paying Agent from the funds in the Trust Fund $510,262.50, which is the amount required to pay the interest which will have accrued on such date on the Remaining Mortgage Notes. On or prior to August 15, 1998, the Trustee is hereby irrevocably instructed to transfer to the Paying Agent from the funds in the Trust Fund $164,557.50 and $510,262.50, which are the amounts required to pay the interest which will have accrued on such date on the Remaining Discount Notes and Remaining Mortgage Notes, respectively. On or prior to the Final Redemption Date, the Trustee is hereby irrevocably instructed to transfer to the Paying Agent from the funds in the Trust Fund $2,045,850.00 and $7,050,900.00, which are the amounts which will be required to pay the principal of (including premium), and the interest which will have accrued on, the Remaining Discount Notes and Remaining Mortgage Notes, respectively, on the Final Redemption Date. (b) The Trustee, in its capacity as Paying Agent for the Remaining 1995 Notes, agrees, to the extent required hereby, to apply the funds transferred to it pursuant to Section 2.01 above, together with the proceeds from the investment thereof pursuant to Section 4.01 below, solely for the purpose of paying the principal of and interest on the Remaining 1995 Notes in the manner provided in this Agreement. Except for amounts transferred to the Paying Agents pursuant to Section 3.02(a) above or to the Company pursuant to Section 3.04 below, and except as permitted in Article IV hereof, the Trustee agrees that it shall never make any withdrawals from the Trust Fund or assert any claims, liens or charges against the Trust Fund. Section 3.03. Trust Fund. The Trust Deposit and all proceeds therefrom shall be the property of the Trust Fund, and shall be applied only in strict conformity with the terms and conditions of the Indenture and this Agreement. All cash balances and other assets on deposit in the Trust Fund are hereby irrevocably transferred to the Trustee in trust for the benefit of the Holders from time to time of the Remaining 1995 Notes, subject to the provisions of this Agreement, to provide for the payment of the principal of and interest on the Remaining 1995 Notes, which payment shall be made by timely transfers to the Paying Agent of such amounts at such times as are provided for in Section 3.02 hereof, but solely from the sources specified in this Agreement and the Indenture. The Trustee shall hold at all times the Trust Fund and the Permitted Investments in trust for the benefit of the 4 8 Holders from time to time of the Remaining 1995 Notes, wholly segregated from all other funds and securities on deposit with the Trustee; it shall never allow the assets of the Trust Fund to be commingled with any other funds or securities of the Trustee; and it shall hold and dispose of the assets of the Trust Fund only as set forth herein and in the Indenture. Nothing herein contained shall be construed as requiring the Trustee to keep the identical money, or any part thereof, received for the Company's account in the Trust Fund, if it is impractical, but money of an equal amount, or investments thereof permitted hereby, must be maintained on deposit in the Trust Fund and held by the Trustee during the term of this Agreement for the benefit of the Holders from time to time of the Remaining 1995 Notes. Section 3.04. Return of Moneys. (a) In the event any Remaining 1995 Note shall not be presented for payment when the principal thereof becomes due or is not thereafter presented for payment, any funds which shall be held for such purpose by the Paying Agent and which remain unclaimed by the Holder of the Remaining 1995 Note not presented for payment shall be held, without liability for interest thereon, for the benefit of the owner of such Remaining 1995 Note who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part with respect to such Remaining 1995 Note; provided that any funds which shall be so held by the Trustee and remain unclaimed by the Holder of the Remaining 1995 Note not presented for payment for a period of two years after the Final Redemption Date shall, subject to Section 8.06 of the Indenture, be paid to the Company upon request and thereafter the Holder of such Remaining 1995 Note shall look only to the Company for payment, without any interest thereon, and the Trustee shall have no responsibility with respect to such moneys. (b) The Trustee shall maintain the Trust Fund until the date upon which all of the payments required by Section 3.02(a) above have been made, whereupon the Trustee shall remit, subject to Section 3.04(a) hereof, to the Company the money, if any, then remaining in the Trust Fund. ARTICLE IV INVESTMENTS Section 4.01. General. Except as provided in this Article IV, the Trustee shall have no power or duty to invest or reinvest any funds held hereunder. The Trustee will promptly invest the Trust Deposit in the investments described on Exhibit "C" hereto (the "Permitted Investments"). Thereafter, at the request of the Company and upon compliance with the conditions hereinafter stated, the Trustee shall reinvest the cash balances in the Trust Fund, except as such proceeds are needed to make payments required to be made pursuant to Sections 3.02(a) or 3.04 hereof, in U.S. Government Obligations that mature the business day before any of the dates specified in Section 3.02(a). Any reinvestment pursuant to this Section 4.01 may be effected only if written instructions from the Company are accompanied by a certificate from a nationally recognized firm of independent certified 5 9 public accountants to the effect that, following the reinvestment, the funds on deposit in the Trust Fund will be sufficient, without further investment or reinvestment, to pay the principal and interest, as applicable, due on the Remaining 1995 Notes as set forth in the Report. Unless otherwise directed by the Company, the Trustee may use a broker-dealer of its own selection, including a broker-dealer owned by or affiliated with the Trustee or any of its affiliates. The Company shall be liable for all brokerage costs and related expenses incurred hereunder. To the extent the Trustee invests the Trust Funds in Permitted Investments or at the request of the Company, other U.S. Government Obligations, the Trustee shall not be liable for any losses on any investments made by it. Section 4.02. Security for Cash Balances. Cash balances from time to time held in the Trust Fund may be deposited by the Trustee in non-interest bearing demand deposits with the Trustee to the extent not otherwise required to be invested hereunder. Any such deposits shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured in the manner provided by law for deposits or trust funds by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances, and the Holders of the Remaining 1995 Notes shall be entitled to a preferred lien and claim upon such obligations in the event of any insolvency, receivership, conservatorship or liquidation of the Trustee. ARTICLE V SECURITY INTEREST Section 5.01. Security Interest. Although it is the intention of the Company to convey the Trust Deposit and any and all proceeds thereof to the Trustee for the benefit of the Holders of the Remaining 1995 Notes and that such assets constitute the property of the Trust Fund and not of the Company, in the event the Trust Fund, for any reason, is revoked or the proceeds thereof are, but for this Article V, to be returned to the Company prior to the payment required by Section 3.02(a) above being made to the Paying Agent for the redemption of the Remaining 1995 Notes, the Company hereby assigns, pledges and grants to the Trustee for its benefit and the benefit of the Holders of the Remaining 1995 Notes, a security interest in all of the Company's right, title and interest in and to all money and securities (if any) in the Trust Fund and all proceeds and products thereof (the "Collateral"). The Holders of the Remaining 1995 Notes shall be entitled to a preferred claim and first lien upon the Collateral. The amounts received by the Trustee under this Agreement shall not be considered as a banking deposit by the Company and the Trustee shall have no right or title with respect thereto except as set forth in this Agreement. Section 5.02. Security for Obligations. This Article V secures the payment and performance of all debt, liabilities and obligations of the Company to the Holders of the Remaining 1995 Notes and the Trustee. 6 10 Section 5.03. Financing Statement. The Company agrees to deliver to the Trustee, on the effective date of this Agreement, a fully executed financing statement relating to the Collateral. The Company hereby authorizes the Trustee to file one or more continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Company where permitted by law (provided that the Trustee furnishes to the Company a copy of each such statement filed, promptly after the filing thereof). A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. Section 5.04. Remedies. In the event the Trust Fund, for any reason, is revoked or the proceeds thereof are, but for this Article V, to be returned to the Company prior to the payment required by Section 3.02(a) above being made to the Paying Agent for the redemption of the Remaining 1995 Notes, the Trustee may retain the Collateral pursuant to its security interest therein and otherwise exercise its rights with respect to the Collateral, in addition to other rights and remedies otherwise available to it, and the rights and remedies of a secured party on default under the Uniform Commercial Code (the "UCC") (whether or not the UCC applies to the Collateral). If the proceeds have been returned to the Company, the Trustee may require the Company to, and the Company hereby agrees that it will at its expense and upon request of the Trustee, forthwith, assemble the Collateral as directed by the Trustee and make it available to the Trustee. ARTICLE VI RECORDS AND REPORTS Section 6.01. Records. The Trustee will keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocations and application of the money and any other assets deposited in the Trust Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the Company and the Holders of the Remaining 1995 Notes. Section 6.02. Reports. For the period beginning on the date hereof and ending on December 31, 1998, and for each 12 month period thereafter while this Agreement remains in effect, the Trustee shall prepare and send to the Company within 30 days following the end of such period a written report summarizing all transactions relating to the Trust Fund during such period together with a detailed statement of the cash balance on deposit in the Trust Fund as of the end of such period. 7 11 ARTICLE VII CONCERNING THE TRUSTEE Section 7.01. Notices to be Given. As soon as permitted by the Indenture following the date of the transfer described in Section 2.01 hereof, but in any event not later than the date required by the Indenture, the Trustee shall give notice in the manner required by the Indenture of the redemption of the Remaining 1995 Notes on the Final Redemption Date. Section 7.02. Moneys to be Held in Trust. All moneys and any other assets received by the Trustee pursuant to this Agreement shall, until used or applied as herein provided (including payment of moneys to the Company under Section 3.04), be held in trust for the purposes for which they were received, and be segregated from other funds. The Trustee shall be under no liability for interest on any moneys received by it hereunder other than such interest as it expressly agrees to pay. Section 7.03. Concerning Compensation and Expenses of Trustee. In consideration of the agreements of the Company contained in the Indenture with respect to the compensation and indemnification of the Trustee and, notwithstanding the provisions of Section 7.7 of the Indenture purporting to give to the Trustee a first lien prior to payment on account of interest on or principal of any 1995 Note under the Indenture with respect to certain amounts due or claimed by the Trustee, the Trustee hereby agrees that it will not make any claim to any amount on deposit in the Trust Fund and hereby waives any lien or claim on such fund. To the extent that this Section 7.03 conflicts with any other provisions contained herein or in the Indenture, this Section 7.03 shall control. Section 7.04. Responsibility of the Trustee. The Trustee shall not be liable or responsible for any act done or step taken or omitted by it or any mistake of fact or law or for anything which it may do or refrain from doing, except for its own negligence or its default or failure in the performance of any material obligation imposed upon it hereunder. The Trustee shall not be responsible in any manner whatsoever for the recitals made herein or the statements contained in the 1995 Notes or any proceedings taken in connection therewith. The Trustee makes no representation as to the value, conditions or sufficiency of the Trust Fund or as to the title of the Company thereto, and the Trustee shall not incur any liability or responsibility with respect to such matters. The Trustee shall not have any liability whatsoever for the insufficiency of monies available in the Trust Fund or for any failure of the obligors of the Permitted Investments, or any other U.S. Government Obligations in which the Trust Funds are invested at the request of the Company, to make timely payment thereon. It is the intention of the parties hereto that the Trustee shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any rights and powers hereunder. 8 12 The Trustee, except with respect to the Indenture, the 1995 Notes, and the Security Documents, is not a party to, nor is it bound by nor need it give consideration to the terms or provisions of any other agreement or undertaking between the Company and other persons, and (except as aforesaid) the Trustee is to give consideration only to the terms and provisions of this Agreement. The Trustee has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the Company with respect to arrangements or contracts with others. The Trustee's sole duty hereunder is to safeguard the Trust Fund and to dispose of and deliver the same in accordance with this Agreement. If, however, the Trustee is called upon by the terms of this Agreement to determine the occurrence of any event or contingency, the Trustee shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in the event of error in making such determination the Trustee shall be liable only for its own willful misconduct or its gross negligence in the light of all circumstances, taking into consideration the time and facilities available to the Trustee in the ordinary conduct of its business. In determining the occurrence of any such event or contingency the Trustee may request from the Company or any other person such reasonable additional evidence as the Trustee in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may inquire and consult, among others, with the Company at any time, and the Trustee shall not be liable for any damages resulting from its delay in acting hereunder pending its examination of the additional evidence requested by it. Section 7.05. Reliance by the Trustee. This Agreement is between the Company, TEC and the Trustee only and in connection therewith the Trustee is authorized by the Company and TEC to rely upon the representations, both actual and implied, of the Company in connection with this Agreement, and the Trustee shall not be liable to any person in any manner for such reliance. The duty of the Trustee hereunder shall only be to the Company, TEC and the owners of the Remaining 1995 Notes. The Trustee may act upon any written notice, request, waiver, consent, certificate, receipt, authorization, opinion of counsel, power of attorney, or other instrument or document which the Trustee in good faith believes to be genuine and to be what it purports to be. The Trustee may consult with legal counsel satisfactory to it concerning any question relating to its duties or responsibilities hereunder or otherwise in connection herewith and shall not be liable for any action taken, suffered or omitted by it in good faith under the advice of such counsel. Section 7.06. Resolution of Disagreements. In the event of any disagreement or controversy hereunder or if conflicting demands or notices are made upon the Trustee growing out of or relating to this Agreement or in the event that the Trustee in good faith is in doubt as to what action it should take hereunder, the Company expressly agrees and consents that the Trustee shall have the absolute right to file a suit in interpleader and obtain an order from a court of appropriate jurisdiction requiring all persons involved to interplead and litigate in such court their several claims and rights among themselves; provided that this Section 7.06 shall not apply to the unconditional duty of the Trustee to 9 13 hold the Trust Fund and to pay the principal of and interest on the Remaining 1995 Notes as the same come due and are payable, in accordance with this Agreement. ARTICLE VIII MISCELLANEOUS Section 8.01. Notice. Any notice, authorization, request, or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given in the manner and to the address as provided in the Indenture. Section 8.02. Term. This Agreement shall be effective upon the attachment hereto of an executed Trust Funding Certificate by the Trustee. Upon the taking of all the actions as described herein by the Trustee, the Trustee shall have no further obligations or responsibilities hereunder to the Company, the Holders of the Remaining 1995 Notes or to any other person or persons in connection with this Agreement except as otherwise provided in the Indenture. Section 8.03. Binding Agreement. This Agreement shall be binding upon the Company, TEC and the Trustee and their respective successors and legal representatives, and shall inure solely to the benefit of the Holders of the Remaining 1995 Notes, the Company, the Trustee and their respective successors and legal representatives. The purpose of this Agreement is to implement and supplement the terms of the Indenture, and in the event of any conflict between the provisions of the Indenture and the provisions of this Agreement, the Indenture shall control; provided, that the Trustee and the Company recognize that this Agreement is entered into for the benefit of the Holders of the Remaining 1995 Notes from time to time and the Trustee hereby accepts the benefits hereof on behalf of such Holders; provided, further, the Trustee and the Company agree that this Agreement may be amended with the prior written consent of each Holder of a Remaining 1995 Note who would be adversely affected by such amendment , if any, (i) to cure any ambiguity, formal defect or omission herein, (ii) to grant to or confer upon the Trustee, for the benefit of the Holders of the Remaining 1995 Notes, any additional rights, remedies, power or authority that may be conferred upon such Holders or the Trustee or (iii) to subject additional funds, securities or other property to the terms of this Agreement, but this Agreement shall never be amended for any other purpose without the prior written consent of the Holders of all Remaining 1995 Notes not theretofore finally paid. Section 8.04. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 10 14 Section 8.05. Texas Law Governs. This Agreement shall be governed exclusively by the provisions hereof and by the applicable law of the State of Texas. Section 8.06. Time of the Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Trustee by this Agreement. Section 8.07. Performance on Business Days. Whenever under the terms of this Agreement the performance date of any provision hereof shall fall on a day which is not a legal banking day, and upon which the Trustee is not open for business, the performance thereof on the next succeeding business day of the Trustee shall be deemed to be in full compliance. Whenever time is referred to in this Agreement it shall be time recognized by the Trustee in the ordinary conduct of its normal business transactions. Section 8.08. Inability of the Trustee. In case at any time the Trustee or its legal successor or successors should become unable, through operation of law or otherwise, to act as Trustee, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other reason, a vacancy shall forthwith and ipso facto exist in the office of Trustee, and a successor Trustee shall be appointed as provided in the Indenture. 11 15 EXECUTED as of the date first written above. FIRST UNION NATIONAL BANK, formerly known as FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee By: ---------------------------------------- ---------------------------------------- TRANSAMERICAN REFINING CORPORATION By: ---------------------------------------- Ed Donahue, Vice President and Secretary TRANSAMERICAN ENERGY CORPORATION By: ---------------------------------------- Ed Donahue, Chief Financial Officer, Vice President and Secretary 12 EX-4.27 10 INDENTURE - SERIES C SENIOR SUB. NOTES 1 EXHIBIT 4.27 =============================================================================== $25,000,000 16% Senior Subordinated Notes due 2003 INDENTURE between TRANSAMERICAN REFINING CORPORATION, as Issuer and First Union National Bank as Trustee Dated as of March 16, 1998 =============================================================================== 2 CROSS-REFERENCE TABLE
TIA INDENTURE SECTION SECTION - ------- ------- 310(a)(1).......................................................................... 7.10 (a)(2)....................................................................... 7.10 (a)(3)....................................................................... N.A. (a)(4)....................................................................... N.A. (a)(5)....................................................................... 7.10 (b).......................................................................... 7.08; 7.10 (c).......................................................................... N.A. 311(a)............................................................................. 7.11 (b).......................................................................... 7.11 (c).......................................................................... N.A. 312(a)............................................................................. 2.05 (b).......................................................................... 13.03 (c).......................................................................... 13.03 313(a)............................................................................. 7.06 (b)(1)....................................................................... 7.06 (b)(2)....................................................................... 7.06 (c).......................................................................... 7.06; 13.02 (d).......................................................................... 7.06 314(a)............................................................................. 4.08; 13.02 (b).......................................................................... 12.03(b) (c)(1)....................................................................... 2.02; 7.02; 13.04 (c)(2)....................................................................... 7.02; 13.04 (c)(3)....................................................................... N.A. (d).......................................................................... 12.03(b); 12.04(b) (e).......................................................................... 13.05 (f).......................................................................... N.A. 315(a)............................................................................. 7.01(b) (b).......................................................................... 7.05; 13.02 (c).......................................................................... 7.01(a) (d).......................................................................... 6.11; 7.01(c) (e).......................................................................... 6.13 316(a)(last sentence).............................................................. 2.09 (a)(1)(A).................................................................... 6.11 (a)(1)(B).................................................................... 6.12 (a)(2)....................................................................... N.A. (b).......................................................................... 6.12; 6.08 (c).......................................................................... 10.05 317(a)(1).......................................................................... 6.03 (a)(2)....................................................................... 6.04 (b).......................................................................... 2.04 318(a)............................................................................. 13.01
- -------------- N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. 3 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.........................................................1 Section 1.1 Definitions.................................................................1 Section 1.2 Incorporation by Reference of TIA..........................................23 Section 1.3 Rules of Construction......................................................23 ARTICLE II THE NOTES.........................................................................................24 Section 2.1 Form and Dating............................................................24 Section 2.2 Execution and Authentication...............................................24 Section 2.3 Registrar and Paying Agent.................................................25 Section 2.4 Paying Agent to Hold Assets in Trust.......................................25 Section 2.5 Noteholder Lists...........................................................26 Section 2.6 Transfer and Exchange......................................................26 Section 2.7 Replacement Notes..........................................................29 Section 2.8 Outstanding Notes..........................................................29 Section 2.9 Treasury Notes.............................................................30 Section 2.10 Temporary Notes............................................................30 Section 2.11 Cancellation...............................................................30 Section 2.12 Defaulted Interest.........................................................30 Section 2.13 Computation of Interest....................................................31 Section 2.14 Legends....................................................................31 Section 2.15 Separation of Notes and Warrants...........................................32 ARTICLE III REDEMPTION........................................................................................32 Section 3.1 Right of Redemption........................................................32 Section 3.2 Notices to Trustee.........................................................32 Section 3.3 Selection of Notes to Be Redeemed..........................................33 Section 3.4 Notice of Redemption.......................................................33 Section 3.5 Effect of Notice of Redemption.............................................34 Section 3.6 Deposit of Redemption Price................................................34 Section 3.7 Notes Redeemed in Part.....................................................34 ARTICLE IV COVENANTS.........................................................................................35 Section 4.1 Payment of Notes...........................................................35 Section 4.2 Maintenance of Office or Agency............................................35 Section 4.3 Limitation on Restricted Payments..........................................35 Section 4.4 Corporate Existence........................................................36 Section 4.5 Payment of Taxes and Other Claims..........................................36
i 4 Section 4.6 Maintenance of Properties and Insurance....................................37 Section 4.7 Compliance Certificate; Notice of Default..................................37 Section 4.8 SEC Reports................................................................38 Section 4.9 Limitation on Status as Investment Company or Public Utility Company....................................................................38 Section 4.10 Limitation on Transactions with Related Persons............................38 Section 4.11 Limitation on Incurrences of Additional Debt and Issuances of Disqualified Capital Stock.................................................39 Section 4.12 Limitations on Restricting Subsidiary Dividends............................41 Section 4.13 Liens......................................................................41 Section 4.14 Limitation on Asset Sales..................................................42 Section 4.15 Waiver of Stay, Extension or Usury Laws....................................45 Section 4.16 Guarantee by Subsidiaries..................................................45 Section 4.17 Intentionally Omitted......................................................46 Section 4.18 Limitations on Line of Business............................................46 Section 4.19 Separate Existence and Formalities.........................................46 Section 4.20 Accounts Receivable Subsidiary.............................................46 Section 4.21 Limitation on Ranking of Future Debt.......................................47 Section 4.22 Maintenance of Interest Reserve Account....................................47 Section 4.23 Restriction on Sale and Issuance of Subsidiary Stock.......................49 ARTICLE V SUCCESSOR CORPORATION.............................................................................49 Section 5.1 When the Company May Merge, Etc............................................49 Section 5.2 Successor Corporation Substituted..........................................50 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES....................................................................51 Section 6.1 Events of Default..........................................................51 Section 6.2 Acceleration of Maturity Date; Rescission and Annulment....................52 Section 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee............53 Section 6.4 Trustee May File Proofs of Claim...........................................54 Section 6.5 Trustee May Enforce Claims Without Possession of Notes.....................54 Section 6.6 Priorities.................................................................55 Section 6.7 Limitation on Suits........................................................55 Section 6.8 Unconditional Right of Holders to Receive Principal, Premium and Interest.....................................................................................55 Section 6.9 Rights and Remedies Cumulative.............................................56 Section 6.10 Delay or Omission Not Waiver...............................................56 Section 6.11 Control by Holders.........................................................56 Section 6.12 Waiver of Past Default.....................................................56 Section 6.13 Undertaking for Costs......................................................56 Section 6.14 Restoration of Rights and Remedies.........................................57
ii 5 ARTICLE VII TRUSTEE...........................................................................................57 Section 7.1 Duties of Trustee..........................................................57 Section 7.2 Rights of Trustee..........................................................58 Section 7.3 Individual Rights of Trustee...............................................59 Section 7.4 Trustee's Disclaimer.......................................................59 Section 7.5 Notice of Default..........................................................59 Section 7.6 Reports by Trustee to Holders..............................................59 Section 7.7 Compensation and Indemnity.................................................59 Section 7.8 Replacement of Trustee.....................................................60 Section 7.9 Successor Trustee by Merger, Etc...........................................61 Section 7.10 Eligibility; Disqualification..............................................61 Section 7.11 Preferential Collection of Claims against Company..........................61 Section 7.12 No Bond....................................................................61 Section 7.13 Condition to Action........................................................61 Section 7.14 Investment.................................................................61 ARTICLE VIII SATISFACTION AND DISCHARGE........................................................................61 Section 8.1 Satisfaction, Discharge of the Indenture and Defeasance of the Notes.......61 Section 8.2 Termination of Obligations Upon Cancellation of the Notes..................63 Section 8.3 Survival of Certain Obligations............................................63 Section 8.4 Acknowledgment of Discharge by Trustee.....................................63 Section 8.5 Application of Trust Assets................................................63 Section 8.6 Repayment to the Company...................................................63 Section 8.7 Reinstatement..............................................................64 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS...............................................................64 Section 9.1 Supplemental Indentures Without Consent of Holders.........................64 Section 9.2 Amendments, Supplemental Indentures and Waivers with Consent of Holders......................................................................................64 Section 9.3 Compliance with TIA........................................................66 Section 9.4 Revocation and Effect of Consents..........................................66 Section 9.5 Notation on or Exchange of Notes...........................................66 Section 9.6 Trustee to Sign Amendments, Etc............................................66 ARTICLE X MEETINGS OF NOTEHOLDERS...........................................................................67 Section 10.1 Purposes for Which Meetings May Be Called..................................67 Section 10.2 Manner of Calling Meetings.................................................67 Section 10.3 Call of Meetings by Company or Holders.....................................67 Section 10.4 Who May Attend and Vote at Meetings........................................67
iii 6 Section 10.5 Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment..........................................................................68 Section 10.6 Voting at the Meeting and Record to Be Kept................................68 Section 10.7 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting...................................................................69 ARTICLE XI RIGHT TO REQUIRE REPURCHASE.......................................................................69 Section 11.1 Repurchase of Notes at Option of the Holder Upon Change of Control.........69 ARTICLE XII SUBORDINATION.....................................................................................70 Section 12.1 Notes Subordinated to Senior Indebtedness..................................70 Section 12.2 No Payment on Securities in Certain Circumstances..........................71 Section 12.3 Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization................................................................72 Section 12.4 Securityholders to Be Subrogated to Rights of Holders of Senior Debt.......72 Section 12.5 Obligations of the Company Unconditional...................................73 Section 12.6 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice.......................................................................................73 Section 12.7 Application by Trustee of Assets Deposited with It.........................73 Section 12.8 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt............................................................74 Section 12.9 Holders of Notes Authorize Trustee to Effectuate Subordination of Securities...................................................................................74 Section 12.10 Right of Trustee to Hold Senior Debt.......................................74 Section 12.11 Article XII Not to Prevent Events of Default...............................74 Section 12.12 No Fiduciary Duty of Trustee to Holders of Senior Debt.....................74 ARTICLE XIII MISCELLANEOUS.....................................................................................75 Section 13.1 TIA Controls...............................................................75 Section 13.2 Notices....................................................................75 Section 13.3 Communications by Holders with Other Holders...............................76 Section 13.4 Certificate and Opinion as to Conditions Precedent.........................76 Section 13.5 Statements Required in Certificate or Opinion..............................76 Section 13.6 Rules by Trustee, Paying Agent, Registrar..................................76 Section 13.7 Legal Holidays.............................................................76 Section 13.8 Governing Law..............................................................76 Section 13.9 No Adverse Interpretation of Other Agreements..............................77 Section 13.10 No Recourse against Others.................................................77 Section 13.11 Successors.................................................................77
iv 7 Section 13.12 Duplicate Originals........................................................77 Section 13.13 Severability...............................................................77 Section 13.14 Table of Contents, Headings, Etc...........................................77 SIGNATURES............................................................................................78
EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Unit Exhibit C - Certificate of Transferor Note: This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. v 8 INDENTURE, dated as of March 16, 1998, between TRANSAMERICAN REFINING CORPORA TION, a Texas corporation (the "Company"), and FIRST UNION NATIONAL BANK, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 16% Senior Subordinated Notes due 2003: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions. "Accounts Receivable Subsidiary" means a subsidiary of TEC designated as an Accounts Receivable Subsidiary for the purpose of financing the accounts receivable of the Company. "Accounts Receivable Subsidiary Notes" means the notes to be issued by the Accounts Receivable Subsidiary for the purchase of accounts receivable. "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. "Adjusted Net Assets" of a Guarantor means the lesser of (a) the amount by which the Guarantor's property, at a fair valuation, exceeds the sum of its debts (including unliquidated or contingent debts), (b) the amount by which the present fair salable value of the Guarantor's assets exceeds the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured, (c) the amount by which the Guarantor's assets exceed the maximum amount that would constitute unreasonably small capital for its business or (d) the amount by which the Guarantor's assets exceed the amount that such Guarantor should reasonably retain to pay its debts (including unliquidated or contingent debts) as they mature. "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 5% or more of the voting power of the voting 9 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). "Agent" means any Registrar, Paying Agent or co-Registrar. "Alkylation Unit" means the alkylation unit being constructed as part of the Capital Improvement Program. "Appraisal" means, when used with respect to the valuation of any property, an appraisal prepared by an Appraiser as to the Appraised Value of such property. "Appraised Value" means, with respect to any property at any date, the then current fair market value of such property as set forth in the most recent Appraisal. "Appraiser" means an independent appraiser of national recognition qualified to appraise the property appraised. "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 Series A/B 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). "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee of the Board of Directors of such Person authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "Business Day" means a day that is not a Legal Holiday. "Capital Expenditures" of a Person means expenditures (whether paid in cash or accrued as a liability) by such Person or any of its Subsidiaries that, in conformity with GAAP, are or would be included in "capital expenditures," "additions to property, plant, or equipment" or comparable items in the consolidated financial statements of such Person consistent with prior accounting practices. 2 10 "Capital Improvement Program" means the expansion and improvement program at the Company as described in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program" and including both Phase I and Phase II. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participations, or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into corporate stock), warrants or options to purchase any of the foregoing, including without limitation, each class of common stock and preferred stock of such Person, if such Person is a corporation, and each general or limited partnership interest or other equity interest of such Person, if such Person is a partnership. "Capitalized Lease Obligation" means obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Debt represented by such obligations shall be the capitalized amount of such obligations, as determined in accordance with GAAP. "cash" means U.S. Legal Tender. "Cash Equivalents" means (a) United States dollars, (b) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than 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 $10,000,000 in the aggregate at any one time, and (i) demand or fully insured time deposits used in the ordinary course of business with commercial banks insured by the Federal Deposit Insurance Corporation. "CATOFIN(R) Unit" means certain real property currently owned by the Company as more specifically defined in the security documents relating to the TEC Notes, together with all personal property of the Company now or hereinafter located on such real property but only to the extent that such property is part of a refining unit designed to produce propane and butane mono-olefins using the CATOFIN(R) process. "Change of Control" means (i) the liquidation or dissolution of, or the adoption of a plan of liquidation by, the Company, or (ii) any transaction, event or circumstance pursuant to which any "person" or "group" (as such terms are used for purposes of Section 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than John R. Stanley (or his heirs, his estate, or any trust in which he or his immediate family members have, directly or indirectly, a beneficial interest in excess of 50%) and his Subsidiaries or the TEC Indenture Trustee, is or becomes the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable), directly or indirectly, of more than 50%, on a 3 11 fully diluted basis, of the total voting power of the Company's then outstanding Voting Stock unless, at the time of the occurrence of an event specified in clauses (i) or (ii), the Notes have a current rating issued by a Rating Agency; provided, however, that if, at any time within the period commencing on the date that is immediately prior to the date of the first public announcement of such event and ending on, but not including, the date that is 90 days after occurrence of such event (which period shall be deemed to be extended so long as prior to the end of such 90-days period and continuing thereafter the rating of the Notes is under publicly announced consideration for possible downgrade by either Rating Agency) either (a) the Notes are downgraded by either Rating Agency to a rating at least one gradation (including a change within rating categories, e.g., a decline in rating from BB+ to BB, or from B to B--) below that which existed on the date immediately prior to the date of the first public announcement of such an event, or (b) either Rating Agency withdraws its rating of the Notes, then, in either case, such event shall be a "Change of Control." "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" means the Company's common stock, $0.01 par value. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" of any Person for any period, unless otherwise defined herein, means (a) the Consolidated Net Income of such Person for such period, plus (b) the sum, without duplication (and only to the extent such amounts are deducted from net revenues in determining such Consolidated Net Income), of (i) the provision for income taxes for such period for such Person and its consolidated Subsidiaries, (ii) depreciation, depletion, and amortization of such Person and its consolidated Subsidiaries for such period and (iii) Consolidated Fixed Charges of such Person for such period, determined, in each case, on a consolidated basis for such Person and its consolidated Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" on any date (the "Transaction Date") means, with respect to any Person, the ratio, on a pro forma basis, of (i) the aggregate amount of Consolidated EBITDA of such Person (attributable to continuing operations and businesses and exclusive of the amounts attributable to operations and businesses discontinued or disposed of, on a pro forma basis as if such operations and businesses were discontinued or disposed of on the first day of the Reference Period) for the Reference Period to (ii) the aggregate Consolidated Fixed Charges 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 4 12 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 5 13 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 deduction therefrom: (i) total liabilities and total capital items as of such date except the following: items constituting Debt, paid-in-capital and retained earnings, provisions for deferred income taxes and deferred gains, and reserves which are not reserves for any contingencies not allocated to any particular purpose; (ii) good will, trade names, trademarks, patents, unamortized debt discount and expense, and other intangible assets; and (iii) all Investments other than Permitted Investments. "Construction Supervisor" means Baker & O'Brien, Inc., as construction supervisor of the Capital Improvement Program or any successor construction supervisor appointed pursuant to the Disbursement Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Debt" means, with respect to any Person, without duplication (i) all liabilities, contingent or otherwise, of such Person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, or similar instruments or letters of credit, (c) representing the deferred and unpaid balance of the purchase price of any property acquired by such Person or services received by such Person, other than long-term service contracts or supply contracts which require minimum periodic payments and other than any such balance that represents an account payable or other monetary obligation to a trade creditor created, incurred, assumed or guaranteed by such Person in the ordinary course of business of such Person in connection with obtaining goods, materials or services due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the Incurrence thereof, which account is not overdue by more than 150 days, unless such account payable is being contested in good faith or has been extended, (d) evidenced by bankers' acceptances or similar instruments issued or accepted by banks or Swap Obligations, (e) for the payment of money relating to a Capitalized Lease Obligation or (f) the Attributable Debt associated with any Sale and Leaseback Transaction; (ii) reimbursement obligations of such Person with respect to letters of credit; (iii) all liabilities of others of the kind described in the preceding clause (i) or (ii) that such Person has guaranteed or that is otherwise its legal liability (to the extent of such guaranty or other legal liability) other than for endorsements, with recourse, of negotiable instruments in the ordinary course of business; (iv) all obligations secured by a Lien (other than Permitted Liens, except to the extent the obligations secured by such Permitted Liens are otherwise included in clause (i), (ii) or (iii) of this definition and are obligations of such Person) to which the property or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such Person are subject, regardless of whether the obligations secured thereby shall have been assumed by or shall otherwise be such Person's legal liability (but, if such obligations are not assumed by such Person or are not otherwise such Person's legal liability, the amount of such Debt shall be deemed to be limited to the fair market value of such property or assets determined as of the end of the preceding fiscal quarter); and (v) any and all deferrals, renewals, extensions, refinancings, and refundings (whether direct or indirect) of, or amendments, modifications, or supplements to, any liability of the kind described in any of the preceding clauses (i) through (iv) regardless of whether between or among the same parties. 6 14 "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. "Definitive Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, and that do not include the information called for by footnotes 1 and 2 thereof. "Delayed Coking Unit" means the delayed coking unit being constructed as part of the Capital Improvement Program. "Depository" means the Person specified in Section 2.3 hereof as the Depository with respect to the Notes issuable in global form, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "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 or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such Person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to June 30, 2003. "DTC" means The Depository Trust Company. "Eligible Institution" means a commercial banking institution that has combined capital and surplus of not less than $500,000,000 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. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "Event of Default" shall have the meaning specified in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. 7 15 "Exchange Offer" means the offer that may be made by the Company pursuant to the Registration Rights Agreement, dated March 16, 1998 between the Company and Jefferies & Company, Inc. to exchange Series D Notes for Series C Notes. "Expense Reimbursement Agreement" means an express 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 Series A/B Issue Date applied on a basis consistent with that used in the preparation of the audited financial statements of the Company included in the Offering Circular. "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 not adverse to the holders of the Notes in any material respect. "Global Note" means a Note in the form of the Note attached hereto as Exhibit A and that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2. "Guarantee" has the meaning set forth in Section 4.16 hereof. "Guarantor" means each of the Company's future Subsidiaries that becomes a guarantor of the Notes and the Company's obligations under this Indenture in compliance with the provisions of this Indenture. "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. "HDS Unit" means the hydrodesulfurization unit being constructed as part of the Capital Improvement Program. "Holder" means the Person in whose name a Note is registered on the Registrar's books. "Hydrocarbons" means oil, natural gas, condensate, and natural gas liquids. "Incur" shall have the meaning specified in Section 4.11. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "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, TARC, TransTexas, or any Guarantor in connection with any assets thereof, 8 16 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. "Intercompany Loan Redemption" means the redemption by the Company of all or a portion of the principal amount then outstanding under the TARC Intercompany Loan together with all accrued and unpaid interest, if any, to and including the redemption date. "Interest Payment Date" means the stated due date of an installment of interest on the Notes. "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 the Company 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. "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 if 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 this 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. "Legal Holiday" shall have the meaning provided in Section 13.7. 9 17 "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). "Liquidated Damages" has the meaning provided in the registration rights agreement relating to the Notes. "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 Series A/B 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%. "Maturity Date," when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity, Change of Control Payment Date, Purchase Date or by declaration of acceleration, call for redemption or otherwise. "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. "Naphtha Pretreater" means the naphtha pretreater being constructed as part of the Capital Improvement Program. "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 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 Proceeds" means (a) in the case of any sale by a Person of Qualified Capital Stock, the aggregate net cash proceeds received by such Person from the sale of Qualified Capital Stock (other than to a Subsidiary) after payment of reasonable out-of-pocket expenses, commissions and discounts incurred in connection therewith, and (b) in the case of any exchange, exercise, 10 18 conversion or surrender of any outstanding securities or Debt of such Person for or into shares of Qualified Capital Stock of such Person, 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, insofar as such payments or expenses are incident to such exchange, exercise, conversion, or surrender). "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. "Non-Recourse Debt" of any Accounts Receivable Subsidiary means Debt of such Accounts Receivable Subsidiary that (a) is not guaranteed by the Company or any of its Subsidiaries (other than a guaranty by the Company limited in recourse to the stock of the Accounts Receivable Subsidiary), (b) is not recourse to and does not obligate the Company or any of its Subsidiaries (other than as described in clause (a) above), and (c) does not subject any assets of the Company (other than Capital Stock of such Accounts Receivable Subsidiary) or any of its Subsidiaries, to the payment thereof. "Noteholder" means the Person in whose name a Note is registered on the Registrar's book. "Note Redemption" means a redemption of Notes by the Company pursuant to the redemption provisions of this Indenture. "Note Repurchase" means a purchase of Notes by the Company, other than pursuant to a Note Redemption or a Change of Control 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 C Senior Subordinated Notes due 2003 and the 16% Series D Senior Subordinated Notes due 2003, in each case as supplemented from time to time in accordance with the terms hereof, issued under this Indenture; provided, however, that at any time after, and for so long as, the Requisite Percentage Amendment is in effect, in determining whether the Holders of the required Value of Notes have concurred in any direction, amendment, supplement, waiver or consent, the definition of Notes shall include the Series A/B Notes. "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 11 19 or the Indenture, including any liquidated damages pursuant to the registration rights agreement relating to the Notes. "Offer Price" shall have the meaning specified in Section 4.14. "Offer to Purchase" means any offer made by the Company to Holders of the Securities required by Section 4.14." "Offering Circular" means the offering circular dated as of March 6, 1998 pursuant to which the Notes were offered. "Office Leases" means the existing leases of office space at 1300 North Sam Houston Parkway East, Houston, Texas 77032-2949. "Officer" means, with respect to the Company, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of the Company. "Officers' Certificate" means, with respect to the Company, a certificate signed by two Officers or by an Officer and an Assistant Secretary of the Company and otherwise complying with the requirements of Sections 13.4 and 13.5. "Old TARC Warrants" means the Common Stock Purchase Warrants of the Company issued on February 23, 1995. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the counsel may be outside counsel to the Company. "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. "Paying Agent" shall have the meaning specified in Section 2.3. "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 the Company or its wholly owned Subsidiaries in wholly owned Subsidiaries of the Company 12 20 that are engaged in a Related Business; (iv) Swap Obligations; (v) the receipt of Capital Stock in lieu of cash in connection with the settlement of litigation; (vi) advances to officers and employees in connection with the performance of their duties in the ordinary course of business in an amount not to exceed $3 million in the aggregate outstanding at any time; (vii) margin deposits in connection with Permitted Hedging Transactions; (viii) an Investment in one or more Unrestricted Subsidiaries of 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 Notes by TARC in an Accounts Receivable Subsidiary in amounts not to exceed the greater of $20 million or 20% of the TARC Borrowing Base at any one time (xi) Investments by the Company in a reincorporation subsidiary in connection with the initial capitalization thereof and not to exceed $1,000 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 and (xvii) Investments in money market mutual or similar funds having assets in excess of $100,000,000. "Permitted Liens" means (a) Liens imposed by governmental authorities for taxes, assessments, or other charges not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Company or any of its Subsidiaries in accordance with GAAP; (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 13 21 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 operation of such New Property, (ii) the principal amount of the Debt secured by such Lien does not exceed 100% of such cost plus reasonable financing fees and other associated reasonable out-of-pocket expenses and (iii) any such Lien shall not extend to or cover any property or assets other than such item of New Property and any improvements on such New Property; (k) leases or subleases granted to others that do not materially interfere with the ordinary course of business of any of the TARC Entities, taken as a whole; (l) Liens on the assets of one of the TARC Entities in favor of another TARC Entity; (m) Liens securing reimbursement obligations with respect to letters of credit that encumber documents relating to such letters of credit and the products and proceeds thereof; provided, that, such reimbursement obligations are not matured for a period of over 60 days; (n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (o) Liens encumbering customary initial deposits and margin deposits securing Swap Obligations or Permitted Hedging Transactions; (p) Liens on cash deposits to secure reimbursement obligations with respect to letters of credit after the Delayed Coking Unit is completed; (q) Liens that secure Unrestricted Non-Recourse Debt; provided, however, that at the time of incurrence the aggregate fair market value of the assets securing such Lien (exclusive of the stock of the applicable Unrestricted Subsidiary) shall not exceed the amount of allowed Unrestricted Non-Recourse Debt of the Company; (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; and (v) Liens on any property of the Company (or any agreement to grant such Liens) securing the Series A/B Notes or the Notes. "Person" means any corporation, individual, joint stock company, joint venture, partnership, unincorporated association, governmental regulatory entity, country, state, or political subdivision thereof, trust, municipality, or other entity. "Phase I "has the meaning given to it in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program." "Phase I Completion Date" means the date on which the Construction Supervisor issues a written notice (the "Phase I Completion Notice") to the Company and the Disbursement Agent certifying that (a) the process units and supporting facilities included in the definition of "Phase I" have reached Mechanical 14 22 Completion in accordance with the Plans, and (b) for a period of at least 15 consecutive days, the Company's refinery has sustained (i) the successful performance of the Delayed Coking Unit, the HDS Unit and the Sulfur Recovery System, (ii) an average feedstock throughput level of at least 150,000 barrels per day, and (iii) no net production of vacuum tower bottoms when using as input a combined feedstock slate with an average API Gravity of 22 degrees or less. "Phase II" has the meaning given to it in the Registration Statement on Form S-4, as amended, of TEC under the heading "Business of TARC--Capital Improvement Program." "Phase II Completion Date" means the date on which the Construction Supervisor issues a written notice (the "Phase II Completion Notice") to the Company and the Disbursement Agent certifying that (a) the process units and supporting facilities included in the definition of "Phase II" have reached Mechanical Completion in accordance with the Plans, and (b) for a period of at least 72 uninterrupted hours, the Company's refinery has sustained (i) the successful performance of all of the Phase I facilities plus the Fluid Catalytic Cracking (FCC) Unit, the FCC Flue Gas Scrubber and the Alkylation Unit, (ii) an average feedstock throughput level of at least 180,000 barrels per day, and (iii) average production yields (measured as the liquid volume percent of feedstock throughput) of refined products with a specific gravity of gasoline or lighter of at least 40% and of middle distillates or lighter of at least 70%, when using a combined Crude Unit feedstock slate with an average API Gravity of 22 degrees or less. "Plans" means (a) the plans and specifications prepared by or on behalf of the Company as used in the Disbursement Agreement, which describe and show the proposed expansion and modification of the Company's refinery and (b) a budget prepared by or on behalf of the Company as used in the Disbursement Agreement. "Post-Commencement Amounts" means all interest and fees accrued or accruing after the commencement of any proceeding initiated under any Bankruptcy Law in accordance with and at the contract rate (including, without limitation, any non-usurious rate applicable upon default) and all premiums, expenses (including costs of collection), indemnities and other amounts that would have accrued or been incurred after the commencement of any such proceeding in any case as specified in any agreement or instrument creating, evidencing, or governing any Senior Debt, whether or not, pursuant to applicable law or otherwise, the claim for such interest, fees, premiums, expenses, indemnities or other amounts is allowed and non-avoidable as a claim in such proceeding. "Preferred Stock" means, with respect to any corporation, any class or classes (however designated) of Capital Stock of such Person that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation over shares of Capital Stock of any other class of such corporation. "principal amount" when used with respect to a Note means the principal amount of such Note as indicated on the face of such Note. "Property" means any right or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Public Equity Offering" means 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. 15 23 "Publicly Traded Stock" means, with respect to any Person, Capital Stock of such Person that is registered under Section 12 of the Exchange Act and actively traded on the New York Stock Exchange or American Stock Exchange or quoted in the National Association of Securities Dealers Automated Quotation System (National Market System). "QIB" shall mean "qualified institutional buyer" as defined in Rule 144A. "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. "Record Date" means a Record Date specified in the Notes regardless of whether such Record Date is a Business Day. "Redemption Date" means, when used with respect to any Note to be redeemed, the date fixed for such redemption pursuant to this Indenture and Paragraph 5 in the forms of Note attached hereto as Exhibit A. "Redemption Price" when used with respect to any Note to be redeemed, means the redemption price for such redemption pursuant to Paragraph 5 in the forms of Note attached hereto as Exhibit A which shall include, without duplication, in each case, accrued and unpaid interest to the Redemption Date. "Reference Period" with regard to any 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 this Indenture. "Registrar" shall have the meaning specified in Section 2.3. "Registration Rights Agreement" means the registration rights agreement in connection with the registration under federal securities laws of the Capital Stock of the Company pledged to the TEC Indenture Trustee under the TEC Indenture, as in effect on the Series A/B 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 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 16 24 gas, condensate and natural gas liquids from outside of the United States and retail marketing of refined petroleum products. "Related Person" means (i) any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Subsidiary of the Company or any officer, director, or employee of the Company or any Subsidiary of the Company or of such Person, (ii) the spouse, any immediate family member, or any other relative who has the same principal residence of any Person described in clause (i) above, and any Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with, such spouse, family member, or other relative, and (iii) any trust in which any Person described in clause (i) or (ii), above, is a fiduciary or has a beneficial interest. For purposes of this definition the term "control" means (a) the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise, or (b) the beneficial ownership of 10% or more of the voting common equity of such Person (on a fully diluted basis) or of warrants or other rights to acquire such equity (whether or not presently exercisable). "Restricted Investment" means any direct or indirect Investment by the Company or any Subsidiary of the Company other than a Permitted Investment. "Restricted Notes" means the Notes required to bear the legends set forth in Exhibit A hereto. "Restricted Payment" means, with respect to any Person, (i) any Restricted Investment, (ii) any dividend or other distribution on shares of Capital Stock of such Person or any Subsidiary of such Person, (iii) any payment on account of the purchase, redemption, or other acquisition or retirement for value of any shares of Capital Stock of such Person, and (iv) any defeasance, redemption, repurchase, or other acquisition or retirement for value, or any payment in respect of any amendment in anticipation of or in connection with any such retirement, acquisition, or defeasance, in whole or in part, of any Pari Passu Debt or Subordinated Debt, directly or indirectly, of such Person or a Subsidiary of such Person prior to the scheduled maturity or prior to any scheduled repayment of principal in respect of such Pari Passu Debt or Subordinated Debt; provided, however, that the term "Restricted Payment" does not include (i) any dividend, distribution, or other payment on shares of Capital Stock of an issuer solely in shares of Qualified Capital Stock of such issuer that is at least as junior in ranking as the Capital Stock on which such dividend, distribution, or other payment is to be made, (ii) any dividend, distribution, or other payment to the Company from any of its Subsidiaries, (iii) any defeasance, redemption, repurchase, or other acquisition or retirement for value, in whole or in part, of any Pari Passu Debt or Subordinated Debt of such Person payable solely in shares of Qualified Capital Stock of such Person, (iv) any payments or distributions made pursuant to and in accordance with the 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 clause (o) of the covenant described herein under the heading "Limitation on the Incurrences of Additional Debt and Issuances of Disqualified Capital Stock," (vii) the purchase by the Company of shares of Capital Stock of the Company, TransTexas or TTXD in connection with each of its employee benefit plans, including without limitation any employee stock ownership plans or any employee stock option plans, in an aggregate amount not to exceed 7% of the aggregate market value of the voting stock held by nonaffiliates of the issuer measured from the date of the first such purchase, (viii) distributions of common stock of TransTexas to TEC, and (ix) any dividend or other distribution on the Capital Stock of any Subsidiary of the Company. 17 25 "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "Sale and Leaseback Transaction" means an arrangement relating to property owned on the Series A/B Issue Date or thereafter acquired whereby the Company or a Subsidiary of the Company transfers such property to a Person and leases it back from such Person. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Debt" means, all Debt of the Company, including, without limitation, the TARC Discount Notes, the TARC Mortgage Notes, the TARC Working Capital Note and the TARC Intercompany Loan, now or hereafter created, incurred, assumed or guaranteed by the Company (and all renewals, extensions or refundings thereof or of any part thereof) (including the principal of, interest on and fees, premiums, expenses (including costs of collection), indemnities and other amounts payable in connection with such Indebtedness, and including Post-Commencement Amounts), unless the instrument governing such Debt expressly provides that such Debt is not senior or superior in right of payment to the Notes. Notwithstanding the foregoing, Senior Debt of the Company shall not include (i) Debt evidenced by the Series A/B Notes or the Notes, (ii) Debt of the Company to any Subsidiary of the Company or to any Unrestricted Subsidiary of the Company, or (iii) any amounts payable or other Debt to trade creditors created, incurred, assumed or guaranteed by the Company or any Subsidiary of the Company in the ordinary course of business in connection with obtaining goods or services. "Series A/B Guarantees" means those subsidiary guarantees of the Series A/B Notes issued pursuant to the Series A/B Indenture. "Series A/B Indenture" means the Indenture dated as of December 30, 1997 between the Company and First Union National Bank, as trustee, providing for the issuance of the Series A/B Notes, as such may be amended and supplemented from time to time. "Series A/B Issue Date" means the date on which the Series A/B Notes were originally issued under the Series A/B Indenture, as such may be amended or supplemented from time to time. "Series A/B Notes" means the Company's 16% Senior Subordinated Notes due 2003 issued pursuant to the Series A/B Indenture. "Series C Notes" means the Company's 16% Series C Senior Subordinated Notes due 2003 issued pursuant to the Indenture. "Series D Notes" means the Company's 16% Series D Senior Subordinated Notes due 2003, issued in exchange for the Series C Notes pursuant to the Indenture. "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 not materially adverse to the holders of the Notes. 18 26 "Special Record Date" for payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.12. "Stated Maturity," when used with respect to 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 a 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. "Surviving Person" shall have the meaning specified in Section 5.1(a). "Swap Obligation" of any Person means any Interest Rate or Currency Agreement entered into with one or more financial institutions or one or more futures exchanges in the ordinary course of business and not for purposes of speculation that is designed to protect such Person against fluctuations in (x) interest rates with respect to Debt Incurred and which shall have a notional amount no greater than 105% of the principal amount of the Debt being hedged thereby, or (y) currency exchange rate fluctuations. "TARC" means TransAmerican Refining Corporation, a Texas corporation, and any successor corporation pursuant to the terms of the provision described under Article V. "TARC Borrowing Base" means, as of any date, an amount equal to the sum of (a) 90% of the book value of all accounts receivable owned by the Company 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 the Company and its Subsidiaries as of such date. To the extent that information is not available as to the amount of accounts receivable as of 19 27 a specific date, the Company may utilize, to the extent reasonable, the most recent available information for purposes of calculating the TARC Borrowing Base. "TARC Discount Notes" means the Guaranteed First Mortgage Discount Notes due 2002 issued by TARC and guaranteed by TEC. "TARC Entities" means TARC and each of its Subsidiaries. "TARC Intercompany Loan" means the senior secured promissory note from 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." "TARC Mortgage Notes" means the Guaranteed First Mortgage Notes due 2002 issued by TARC and guaranteed by TEC. "TARC Working Capital Note" means the promissory note from the Company to TEC dated as of July 31, 1997. "Tax Allocation Agreement" means the Tax Allocation Agreement, dated as of August 24, 1993, among TNGC Holdings Corporation, the Company, TEC and other subsidiaries of TNGC Holdings Corporation as in effect on the Series A/B Issue Date and as amended from time to time, provided that any such amendment is not materially adverse to the holders of the Notes. "TEC" means TransAmerican Energy Corporation, a Delaware corporation. "TEC Indenture" means the indenture, dated as of June 13, 1997, by and between TEC and Firstar Bank of Minnesota, N.A., as trustee, relating to the TEC Notes. "TEC Indenture Trustee" means the trustee under TEC Indenture. "TEC Notes" means TEC's 11 1/2% Senior Secured Notes due 2002 and 13% Senior Secured Discount Notes due 2002, issued pursuant to the TEC Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the execution of this Indenture. "Trading Day" means any day on which the securities in question are quoted on the NYSE, or if such securities are not approved for listing on the NYSE, on the principal national securities market or exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities market or exchange, on the NNM. "TransAmerican" means TransAmerican Natural Gas Corporation, a Texas corporation. "Transfer Agreement" means the Transfer Agreement, dated as of August 24, 1993, among TransAmerican, TransTexas Transmission Corporation, and John R. Stanley, as in effect on the Series A/B Issue Date and as amended from time to time, provided that any such amendment is not materially adverse to the holders of the Notes. 20 28 "TransTexas" means TransTexas Gas Corporation, a Delaware corporation. "Trust Officer" means any officer within the corporate trust department (or any successor group) of the Trustee including any vice president, assistant vice president, secretary, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer of the corporate trust department (or any successor group) of the Trustee to whom such trust matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "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. "Units" means the Units consisting of $25,000,000 aggregate principal amount of Notes and 25,000 Warrants, issued by the Company. Each Unit consists of one Note in the principal amount of $1000 and one Warrant to purchase 13.344257 shares of the Company's common stock, par value $.01 per share. "Unrestricted Non-Recourse Debt" of the Company or any of its Subsidiaries means (i) Debt of such Person that is secured solely (other than with respect to clause (ii) below) by a Lien upon the stock of an Unrestricted Subsidiary of such Person and as to which there is no recourse (other than with respect to clause (ii) below) against such Person or any of its assets other than against such stock (and the dollar amount of any Debt of such Person as described in this clause (i) shall be deemed to be zero for purposes of all other provisions of the Indenture) and (ii) guarantees of the Debt of Unrestricted Subsidiaries of such Person; provided, that the aggregate of all Debt of such Person Incurred and outstanding pursuant to clause (ii) of this definition, together with all Permitted Investments (net of any return on such Investment) in Unrestricted Subsidiaries of such Person, does not exceed 20% of TARC's Consolidated EBITDA since the Phase II Completion Date in the case of TARC plus in the case of clause (ii) of this definition of Unrestricted Non- Recourse Debt, Restricted Payments permitted to be made pursuant to 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 Series A/B 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 Section 4.3 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 21 29 pursuant to the provisions described under Section 4.11 (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. "U.S. Government Obligations" means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Value" means, as of any date, the outstanding principal amount of the Notes, plus all accrued and unpaid interest thereon. "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. "Warrant" means any one of the warrants to purchase shares of Common Stock issued by the Company pursuant to the Warrant Agreement. "Warrant Agent" means First Union National Bank, in its capacity as Warrant Agent under the Warrant Agreement, and any successor thereto. "Warrant Agreement" means the Warrant Agreement, dated March 16, 1998, by and between the Company and the Warrant Agent. Section 1.2 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Notes. 22 30 "indenture securityholder" means a Holder or a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Notes means the Company and any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them thereby. Section 1.3 Rules of Construction. Unless the context otherwise requires: (l) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accor dance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (7) references to Sections or Articles means reference to such Section or Article in this Indenture, unless stated otherwise. ARTICLE II THE NOTES Section 2.1 Form and Dating. Subject to Section 2.15, the Notes and the Trustee's certificate of authentication, in respect thereof, shall be substantially in the form of Exhibit A, the terms of which are incorporated in and made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Any such notations, legends or endorsements not contained in the forms of Note attached as Exhibit A hereto shall be delivered in writing to the Trustee. Each Note shall be dated the date of its authentication. The terms and provisions contained in the forms of Note shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. In the event of any inconsistency between the Notes and this Indenture, this Indenture controls. 23 31 The Notes will be issued (i) in global form (the "Global Note"), substantially in the form of Exhibit A attached hereto (including the text referred to in footnotes 1 and 2 thereto) and (ii) in definitive form (the "Definitive Notes"), substantially in the form of Exhibit A attached hereto (excluding the text referred to in footnotes 1 and 2 thereto). The Global Note shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon; provided, that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2 Execution and Authentication. Two Officers shall sign, or one Officer shall sign and one Officer or any Assistant Secretary shall attest to, the Notes or the Units, as the case may be, for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Notes or Units, as the case may be, and may be in facsimile form. If an Officer whose signature is on a Note or Unit, as the case may be, was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Note or Unit, as the case may be, the Note or Unit, as the case may be, shall be valid nevertheless and the Company shall nevertheless be bound by the terms of the Notes or Units, as the case may be and this Indenture. A Note or Warrant, as the case may be, shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note or Unit, as the case may be, but such signature shall be conclusive evidence that the Note or Unit, as the case may be, has been authenticated pursuant to the terms of this Indenture. The Trustee shall authenticate Notes or Units, as the case may be, for original issue in the aggregate principal amount of $25,000,000, upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Notes or Units, as the case may be, to be authenticated and the date on which the Notes or Units, as the case may be, are to be authenticated. The aggregate principal amount of Notes or Units, as the case may be, outstanding at any time may not exceed $25,000,000 in aggregate principal amount, except as provided in Section 2.7. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Notes or Units, as the case may be, in substitution of Notes or Units, as the case may be, originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes or Units, as the case may be. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes or Units, as the case may be, whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with any Obligor, any Affiliate of any Obligor, or any of their respective Subsidiaries. Notes shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. Section 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan in the City of New York, New York, where Notes may be presented for registration 24 32 of transfer or for exchange ("Registrar") and an office or agency in the Borough of Manhattan in the City of New York, New York, where Notes may be presented for payment ("Paying Agent"). Notices and demands to or upon the Company in respect of the Notes may be served as is provided in Section 13.2. The Company or any Affiliate of the Company may act as Registrar or Paying Agent, except that, for the purposes of Articles III, VIII and XI and Sections 4.14 and 4.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent. The Company hereby initially appoints the Trustee as Registrar and Paying Agent, and the Trustee hereby initially agrees so to act. The Company shall enter into an appropriate written agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee in writing in advance of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints DTC to act as Depository with respect to the Global Notes. The Trustee shall act as custodian for the Depository with respect to the Global Notes. Section 2.4 Paying Agent to Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and shall notify the Trustee in writing of any Default in making any such payment. If the Company or any Affiliate of the Company acts as Paying Agent, it shall segregate such assets and hold them as a separate trust fund for the benefit of the Holders or the Trustee. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent (if other than the Company, or any Affiliate of the Company) shall have no further liability for such assets. Section 2.5 Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before the third Business Day preceding each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee reasonably may require of the names and addresses of Holders. Section 2.6 Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request (1) to register the transfer of the Definitive Notes or (2) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such trans actions are met; provided, that the Definitive Notes so presented (A) have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing; and (B) in the case of a Restricted Note, such request shall be accompanied by the following additional documents: 25 33 (i) if such Restricted Note is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (ii) if such Restricted Note is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (iii) if such Restricted Note is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto) and an opinion of counsel reasonably acceptable to the Company and the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may be exchanged for a beneficial interest in a Global Note only upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) written instructions directing the Trustee to make an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, and (ii) if such Definitive Note is a Restricted Note, a certification (in substantially the form of Exhibit C attached hereto) to the effect that such Definitive Note is being transferred to a QIB in accordance with Rule 144A; in which case the Trustee shall cancel such Definitive Note and cause the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Note is then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture and the procedures of the Depository therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. Upon receipt by the Trustee of written transfer instructions (or such other form of instructions as is customary for the Depository), from the Depository (or its nominee) on behalf of any Person having a beneficial interest in a Global Note, the Trustee shall, in accordance with the standing instructions and procedures existing between the Depository and the Trustee, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available 26 34 for delivery to the transferee a Definitive Note in the appropriate principal amount; provided, that in the case of a Restricted Note, such instructions shall be accompanied by the following additional documents: (i) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (ii) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto); or (iii) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit C attached hereto) and, if the Trustee deems it appropriate, an opinion of counsel reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. Definitive Notes issued in exchange for a beneficial interest in a Global Note shall be registered in such names and in such authorized denominations as the Depository shall instruct the Trustee. (e) Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture, the Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository; provided, that if: (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository and a successor Depository is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute and the Trustee shall authenticate and make available for delivery, Definitive Notes in an aggregate principal amount equal to the aggregate principal amount of the Global Note in exchange for such Global Note. (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in the Global Note have either been exchanged for Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be returned to or retained and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for Definitive Notes, redeemed, repurchased 27 35 or cancelled, the aggregate principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee to reflect such reduction. (g) General Provisions Relating to Transfers and Exchanges of Notes. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be legal, valid and binding obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange (without transfer to another person) pursuant to Sections 2.10, 3.1, 4.14, 4.21, 4.24, Article XI and 9.5 of this Indenture). The Company shall not be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (iii) register the transfer of or exchange a Note between a record date and the next succeeding interest payment date. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for all purposes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (h) Exchange of Series C Notes for Series D Notes. The Series C Notes may be exchanged for Series D Notes pursuant to the terms of the Exchange Offer. The Trustee and Registrar shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (A) upon issuance of the Series D Notes, the transactions contemplated by the Exchange Offer have been consummated; and (B) the principal amount of Series C Notes properly tendered in the Exchange Offer that are represented by a Global Note and the principal amount of Series C Notes properly tendered in the Exchange Offer that are represented by Definitive Notes, the name of each Holder of such Definitive Notes, the principal amount at maturity properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Notes for Series D Notes shall be registered and sent for each such Holder. The Trustee, upon receipt of (i) such Officers' Certificate and (ii) an Opinion of Counsel (x) to the effect that the Series D Notes have been registered under Section 5 of the Securities Act and this Indenture has been qualified under the TIA and (y) with respect to the matters set forth in Section 6 of the registration rights agreement relating to the Notes, shall authenticate (A) a Global Note for Series D Notes in an 28 36 aggregate principal amount equal to the aggregate principal amount of Series C Notes represented by a Global Note indicated in such Officers' Certificate as having been properly tendered and (B) Definitive Notes representing Series D Notes registered in the names of, and in the principal amounts indicated in such Officers' Certificate. If the principal amount at maturity of the Global Note for the Series D Notes is less than the principal amount at maturity of the Global Note for the Series C Notes, the Trustee shall make an endorsement on such Global Note for Series C Notes indicating a reduction in the principal amount at maturity represented thereby. The Trustee shall deliver such Definitive Notes for Series D Notes to the Holders thereof as indicated in such Officers' Certificate. Section 2.7 Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims and submits an affidavit or other evidence, satisfactory to the Company and Trustee, to the Trustee to the effect that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. The Company and the Trustee may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Note. Every replacement Note is an additional obligation of the Company. Section 2.8 Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.8 as not outstanding. A Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note, except as provided in Section 2.9. If a Note is replaced pursuant to Section 2.7 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or an Affiliate of the Company) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. Section 2.9 Treasury Notes. In determining whether the Holders of the required Value of Notes have concurred in any direction, amendment, supplement, waiver or consent, Notes owned by the Company and Affiliates of the Company shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, amendment, supplement, waiver or consent, only Notes that the Trustee knows or has reason to know are so owned shall be disregarded. Section 2.10 Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the 29 37 form of definitive Notes but may have variations that the Company reasonably and in good faith considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as permanent Notes authenticated and delivered hereunder. Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or any Affiliate of the Company, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, the Company may not issue new Notes to replace Notes it has paid or delivered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.11, except as expressly permitted in the forms of Note and as permitted by this Indenture. Section 2.12 Defaulted Interest. Interest on any outstanding Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note (or one or more predecessor Notes) is registered at the close of business on the Record Date for such interest. Any interest on any outstanding Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date plus, to the extent lawful, any interest payable on the defaulted interest (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as provided in this clause (1). Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address set forth upon the registry books of the Company on the 10th day prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their 30 38 respective predecessor Notes) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause accompanied by an Opinion of Counsel stating that the manner of payment complies with this clause, such manner shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. Section 2.13 Computation of Interest. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. Section 2.14 Legends. (a) Except as permitted by subsections (b) or (c) hereof, each Note shall bear legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A or Exhibit B attached hereto, as applicable. (b) Upon any sale or transfer of a Restricted Note (including any Restricted Note represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: (i) in the case of any Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Restricted Note for a Definitive Note that does not bear the legends required by subsection (a) above; and (ii) in the case of any Restricted Note represented by a Global Note, such Restricted Note shall not be required to bear the legends required by subsection (a) above, but shall continue to be subject to the provisions of Section 2.6(c) or (k), as applicable, hereof; provided, that with respect to any request for an exchange of a Restricted Note that is represented by a Global Note for a Definitive Note that does not bear the legends required by subsection (a) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144. (c) The Company shall issue and the Trustee shall authenticate Series D Notes in exchange for Series C Notes accepted for exchange in the Exchange Offer. The Series D Notes shall not bear the legends required by subsection (a) above unless the Holder of such Series D Notes is either (A) a broker-dealer who purchased such Series D Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Series D Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. 31 39 Separation of Notes and Warrants. The Notes and the Warrants that comprise the Units shall not be separately transferable until the earlier of (i) one year from the Series A/B Issue Date, (ii) commencement of the Exchange Offer and (iii) such other date as may be determined by Jefferies & Company, Inc. The Units and the beneficial interest in the Notes and the Warrants that comprise the Units shall be evidenced only by one or more certificates in substantially the form of Exhibit B hereto, the terms of which are incorporated in and made a part of this Indenture. The terms of the Warrants are governed by the Warrant Agreement and are subject to the terms and provisions contained therein. If any Units are presented for registration of transfer or exchange in accordance with the terms of this Indenture and the Warrant Agreement, or if the Warrants evidenced thereby are exercised, the Company shall cause the Trustee, the Registrar or the Warrant Agent, as appropriate, to issue certificates evidencing the Notes and the Warrants (to the extent unexercised) in lieu of such Units. In accordance with the Warrant Agreement, fractional Warrants will not be issued upon separation of the Notes and Warrants, but in lieu thereof, a cash adjustment will be paid. The provisions of Section 2.1 through 2.14, to the extent applicable to the Notes, shall also apply to the Notes evidenced by any Units. ARTICLE III REDEMPTION Section 3.1 Right of Redemption. Redemption of Notes, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article III. The Company may redeem at its election, at any time on or after the Issue Date, any or all of the Notes in cash at the applicable Redemption Prices specified in Paragraph 5 of the forms of Note attached as Exhibit A hereto, set forth therein under the caption "Optional Redemption," including accrued and unpaid interest, if any, to the Redemption Date. Section 3.2 Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 5 of the Notes, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders. The Company shall give each notice to the Trustee provided for in this Section 3.2 at least 30 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). Section 3.3 Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed pursuant to Paragraph 5 thereof, the Trustee shall select the Notes to be redeemed pro rata, by lot or in such other manner as in its sole discretion it deems appropriate and fair, and in such manner as complies with any applicable legal and stock exchange requirements. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger 32 40 than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.4 Notice of Redemption. At least 15 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail, postage prepaid, to the Trustee and each Holder whose Notes are to be redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. 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. Each notice for redemption shall identify the Notes to be redeemed and shall state the following and such other matters as the Trustee shall deem proper: (1) the Redemption Date; (2) the Redemption Price, including the amount of accrued and unpaid interest to be paid upon such redemption; (3) the name, address and telephone number of the Paying Agent; (4) that Notes called for redemption must be surrendered to the Paying Agent at the address specified in such notice to collect the Redemption Price; (5) that, unless the Company defaults in its obligation to deposit U.S. Legal Tender with the Paying Agent in accordance with Section 3.6, interest on Notes called for redemption ceases to accrue and/or the original issue discount ceases to accrete on Notes called for redemption on and after the Redemption Date and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, including accrued and unpaid interest, upon surrender to the Paying Agent of the Notes called for redemption and to be redeemed; (6) if any Note is being redeemed in part, the portion of the principal amount, equal to $1,000 or any integral multiple thereof, of such Note that will not be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued; (7) if less than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of such Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; (8) the CUSIP number of the Notes to be redeemed; and (9) that the notice is being sent pursuant to this Section 3.4 and pursuant to the redemption provisions of Paragraph 5 of the Notes. Section 3.5 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.4, Notes called for redemption become due and payable on the Redemption Date and at the 33 41 Redemption Price, including accrued and unpaid interest; provided, however, that 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. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price, including interest, if any, accrued and unpaid on the Redemption Date; provided that if the Redemption Date is after a regular Record Date and on or prior to the Interest Payment Date, the accrued interest through the date of redemption shall be payable to the Holder of the redeemed Notes registered on the relevant Record Date; and provided, further, that if a Redemption Date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Upon compliance by the Company with the provisions of this Article III, including but not limited to Section 3.6, and upon satisfaction or waiver of any conditions precedent to the Company's obligation to effect such redemption contained in the related notice of redemption, interest on the Notes called for redemption will cease to accrue, and/or the original issue discount will cease to accrete on the Notes called for redemption, on and after the Redemption Date, regardless of whether such Notes are presented for payment. Section 3.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Paying Agent (other than the Company or an Affiliate of the Company) U.S. Legal Tender sufficient to pay the Redemption Price of, including accrued and unpaid interest on, all Notes to be redeemed on such Redemption Date (other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of the Company. If the Company complies with the preceding paragraph and the other provisions of this Article III, interest on the Notes to be redeemed will cease to accrue on the applicable Redemption Date, and/or the original issue discount will cease to accrete on the Notes to be redeemed on the applicable Redemption Date, regardless of whether such Notes are presented for payment. Notwithstanding anything herein to the contrary, if any Note surrendered for redemption in the manner provided in the Notes shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall continue to accrue and be paid from the Redemption Date until such payment is made on the unpaid principal and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 4.1 and the Note. Section 3.7 Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder, without service charge, a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE IV COVENANTS Section 4.1 Payment of Notes. The Company shall pay the principal of and interest on the outstanding Notes on the dates and in the manner provided in the Notes to the Trustee at its New York agent's office unless otherwise instructed in writing by the Trustee. An installment of principal of or interest on the 34 42 Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds for the benefit of the Holders, on or before 11:00 a.m. Houston, Texas time on that date, U.S. Legal Tender deposited and designated for and sufficient to pay the installment. The Company shall pay any and all amounts, including without limitation, Liquidated Damages, if any, on the dates and in the manner required under the registration rights agreement relating to the Notes. The Company shall pay interest on overdue principal and on overdue installments of interest at the rate specified in the Notes compounded semi-annually, to the extent lawful. Notwithstanding anything to the contrary contained in this Indenture, the Company or the Trustee may, to the extent required by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium or interest payments on the Notes. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan in the City of New York, New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan in the City of New York, New York, for such purposes. The Company shall give prior written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the corporate trust office of the Trustee in the Borough of Manhattan in the City of New York, New York, as such office of the Company. 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 may make a Restricted Payment if, at the time or after giving effect thereto on a pro forma basis no Default or Event of Default would occur or be continuing, and: (a) 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 35 43 (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 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 4.4 Corporate Existence. Subject to Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Subsidiaries in accordance with the respective organizational documents of each of them and the rights (charter and statutory) and corporate franchises of the Company and each of its Subsidiaries; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Subsidiaries, any such existence, right or franchise, if (a) the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and (b) the loss thereof is not disadvantageous in any material respect to the Holders. Section 4.5 Payment of Taxes and Other Claims. The Company shall, and shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon the Company or any of its Subsidiaries or any of their respective properties and assets; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been established in accordance with GAAP. Section 4.6 Maintenance of Properties and Insurance. (a) Each of the Company and its Subsidiaries shall cause the properties used or useful to the conduct of its business and the business of each of its Subsidiaries to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its reasonable judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (b) Each of the Company and its Subsidiaries shall provide, or shall 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 36 44 appropriate for the conduct of its business and the business of its Subsidiaries in a prudent manner for companies engaged in a similar business. Section 4.7 Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 60 days after the end of each of its fiscal quarters, or 105 days after the end of a fiscal quarter that is also the end of a fiscal year, an Officers' Certificate complying with Section 314(a)(4) of the TIA and stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal quarter has been made under the supervision of the signing Officers with a view to determining whether the Company and its Subsidiaries have kept, observed, performed and fulfilled its obligations (excluding those obligations addressed by Section 12.3) under this Indenture and further stating, as to each such Officer signing such certificate, regardless of whether the signer knows of any failure by the Company or any Subsidiary of the Company to comply with any conditions or covenants in this Indenture, or of the occurrence of any Default, and, if such signor does know of such a failure to comply or Default, the certificate shall describe such failure or Default with particularity. (b) The Company shall deliver to the Trustee within 105 days after the end of each of its fiscal years a written report of a firm of independent certified public accountants with an established national reputation stating that in conducting their audit for such fiscal year, nothing has come to their attention that caused them to believe that the Company or any Subsidiary of the Company was not in compliance with the provisions set forth in Section 4.3, 4.11 or 4.14. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, immediately upon becoming aware of any Default or Event of Default under this Indenture, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of a Default or an Event of Default unless one of its trust officers receives notice of the Default giving rise thereto from the Company or any of the Holders. (d) The Company shall deliver to the Trustee an Officers' Certificate specifying any changes in the composition of the Board of Directors of the Company or any of its Subsidiaries or of any amendment to the charter or bylaws of the Company or any of its Subsidiaries. The Officers' Certificate shall include a description in reasonable detail of such amendment or change and an explanation why such amendment or change does not constitute a Default or Event of Default. 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 37 45 those of the Company required by the preceding paragraph. The Company shall also comply with the other provisions of TIA Section 314(a). So long as is required for an offer or sale of the Notes to qualify for an exemption under Rule 144A, the Company shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Notes identified by any Holder of Restricted Notes. Section 4.9 Limitation on Status as Investment Company or Public Utility Company. The Company shall not, and shall not permit any of its Subsidiaries to, become an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or a "holding company," or "public utility company" (as such terms are defined in the Public Utility Holding Company Act of 1935, as amended) or otherwise become subject to regulation under the Investment Company Act or the Public Utility Holding Company Act. Section 4.10 Limitation on Transactions with Related Persons. (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), and (xvi) 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 transactions between Wholly Owned Subsidiaries of the Company, (D) transactions pursuant to the Services Agreement, the Transfer Agreement, the Tax Allocation Agreement, the Gas Purchase Agreement, the Expense Reimbursement Agreement, the TARC Intercompany Loan and 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 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 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; and (I) the Company and its Subsidiaries may pay a management fee to TransAmerican in an amount not to exceed $2,500,000 per year. 38 46 (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), or (G) 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) or (G) 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 "big 6 accounting firm" or a nationally recognized investment banking firm; provided that such opinion shall not be necessary if approval of the Board of Directors to such Related Person Transaction has been obtained after receipt of bona fide bids of at least two other independent parties and such Related Person Transaction is in the ordinary course of business. 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 Series A/B Issue Date, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, or otherwise become liable for, contingently or otherwise (to "Incur" or, as appropriate, an "Incurrence"), any Debt or issue any Disqualified Capital Stock, except : (a) Debt evidenced by the Series A/B Notes, the Notes, the Series A/B Guarantees and the Guarantees in an aggregate principal amount not to exceed $200 million; (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, or Debt of any wholly owned Subsidiary of the Company solely to the Company or to any wholly owned Subsidiary of the Company; (d) Debt of the Company outstanding at any time in an aggregate principal amount not to exceed the greater of (x) $100 million or (y) the TARC Borrowing Base, less, in each case, the amount of any Debt of an Accounts Receivable Subsidiary (other than Debt owed to the Company); (e) Debt in an aggregate principal amount not to exceed at any one time $50 million; (f) Debt secured by the Storage Assets in an aggregate amount outstanding at any one time not to exceed $115 million; (g) Debt secured by a Permitted Lien that meets the requirements of clause (c), (g), (m), (o) and (r) of the definition of "Permitted Liens," to the extent that such Liens would give rise to Debt under clauses (i), (ii), or (iii) of the definition of "Debt;" (h) Any guaranty of Debt 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 of the Company; (j) Unrestricted Non-Recourse Debt of the Company; (k) Debt evidenced by the TARC Mortgage Notes; (l) letters of credit and reimbursement obligations relating thereto to the extent collateralized by cash or Cash Equivalents; (m) Debt evidenced by the TARC Discount Notes; (n) Debt of TARC or any of its Subsidiaries owed to TEC which is loaned pursuant to terms of the fourth paragraph of either of the covenants contained 39 47 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) the Company may Incur Debt as an extension, renewal, replacement, or refunding of any of the Debt permitted to be Incurred by clauses (b) or (q) hereof, or this clause (o) (such Debt is collectively referred to as "Refinancing Debt"), provided, that (1) the maximum principal amount of Refinancing Debt (or, if such Refinancing Debt is issued with original issue discount, the original issue price of such Refinancing Debt) permitted under this clause (o) may not exceed the lesser of (x) the principal amount of the Debt being extended, renewed, replaced, or refunded plus Refinancing Fees or (y) if such Debt being extended, renewed, replaced, or refunded was issued at an original issue discount, the original issue price, plus amortization of the original issue discount as of the time of the Incurrence of the Refinancing Debt plus Refinancing Fees and (2) the Refinancing Debt shall rank with respect to the Notes to an extent no less favorable in respect thereof to the Holders than the Debt being refinanced; (p) Debt secured by Liens permitted pursuant to clauses (h) and (j) of Permitted Liens, in an aggregate principal amount not to exceed $35 million; (q) Debt of the Company Incurred in connection with the acquisition, construction or improvement of a CATOFIN(R) Unit not in excess of 20% of the Company's Consolidated EBITDA accrued for the period (taken as one accounting period) commencing with the first full fiscal quarter that commenced after the Phase I Completion Date, to and including the fiscal quarter ended immediately prior to the date of such calculation, provided, that, no such Debt may be Incurred unless (i) the Phase II Completion Date has occurred or (ii) the Construction Supervisor shall have provided the Trustee with written certification that, based upon its bi-monthly evaluation of the Capital Improvement Program, the amounts remaining in the disbursement accounts to complete Phase II are sufficient to complete Phase II in accordance with the Plans approved by the Construction Supervisor, and (r) Debt of the Company 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 may Incur Senior Debt and the Company may issue Disqualified Capital Stock if, at the time such Senior Debt is Incurred or such Disqualified Capital Stock is issued, (i) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such transaction on a pro forma basis, and (ii) immediately after giving effect to the Consolidated 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 Company for the Reference Period is greater than 2.25 to l, and (b) the Company may Incur Subordinated Debt if, at the time such Subordinated Debt is incurred, (i) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such transaction on a pro forma basis, and (ii) immediately after giving effect to the Consolidated 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 Company for the Reference Period is greater than 2.0 to I. Debt Incurred and Disqualified Capital Stock issued by any Person that is not a Subsidiary of the Company 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 or one of its Subsidiaries, as 40 48 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 or one of its Subsidiaries. For the purpose of determining compliance with this covenant, (A) if an item of Debt meets the criteria of more than one of the types of Debt described in the above clauses, the Company or the Subsidiary in question shall have the right to determine in its sole discretion the category to which such Debt applies and shall not be required to include the amount and type of such Debt in more than one of such categories and may elect to apportion such item of Debt between or among any two or more of such categories otherwise applicable, and (B) the amount of any Debt which does not pay interest in cash or which was issued at a discount to face value shall be deemed to be equal to the amount of the liability in respect thereof determined in accordance with GAAP. Section 4.12 Limitations on Restricting Subsidiary Dividends. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, assume, or suffer to exist any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to pay dividends or make other distributions on the Capital Stock of any Subsidiary of the Company, except encumbrances and restrictions existing under this Indenture and any agreement of a Person acquired by the Company or a Subsidiary of the Company, which restrictions existed at the time of acquisition, were not put in place in anticipation of such acquisition and are not applicable to any Person or property, other than the Person or any property of the Person so acquired. Notwithstanding anything contained herein to the contrary, the Company may not create an encumbrance or restriction on their ability to pay premium, if any, principal of, or interest on, the TARC Intercompany Loan. 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. 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. The Company covenants to grant to the Trustee on behalf of the Holders a Lien on the assets of the Company currently subject to a Lien in favor of TEC; provided, that the Company is then permitted under the Series A/B Indenture to grant such Lien and further provided that the Company shall not be required to grant such Lien until the TARC Intercompany Loan has been paid in full and has not been refinanced, refunded or replaced with the proceeds of Other Debt ("Other Debt"), which Other Debt has a lower cost of capital to TARC than the TARC Intercompany Loan and the principal amount of such Other Debt (or, if such Other Debt is issued with original issue discount, the original issue 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. Section 4.14 Limitation on Asset Sales. (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless: (i) the Company (or its Subsidiaries, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors and evidenced by a board resolution in the case 41 49 of any Asset Sales or series of related Asset Sales having a fair market value of $15 million or more); (ii) at least 85% of the proceeds received by the Company (or its Subsidiaries, as the case may be) from each such Asset Sale consists of (A) cash, (B) Cash Equivalents, (C) Publicly Traded Stock or (D) any combination of the foregoing; provided, however, that (l) the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet or in the notes thereto) of the Company or such Subsidiary (other than liabilities that are by their terms expressly subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Subsidiary from such transferee that, within 90 days following the closing of such sale or disposition, are converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision and (2) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company, evidenced by a board resolution) of all consideration of the type specified in clause (C) above received by the Company and its Subsidiaries from all Asset Sales after the Series A/B Issue Date shall not exceed 15% of Consolidated Net Tangible Assets at the time of such Asset Sale; and (iii) the Net Cash Proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sales are applied in accordance with subsection (c) below. (b) Notwithstanding the foregoing limitations on Asset Sales and restrictions on the use of Net Cash Proceeds therefrom: (A) The Company or any Guarantor may convey, sell, lease, transfer, or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any Guarantor; (B) the Company and its Subsidiaries may engage in Asset Sales in the ordinary course of business; (C) the Company and its Subsidiaries may engage in Asset Sales not otherwise permitted in clauses (A), (B) or (D) through (K) of this sentence provided that the aggregate proceeds from all such Asset Sales do not exceed $10 million in any twelve-month period; (D) the Company and its Subsidiaries may engage in Asset Sales pursuant to and in accordance with the provisions described under Article V hereof; (E) the Company and its Subsidiaries may sell, assign, lease, license, transfer, abandon or otherwise dispose of (a) damaged, worn out, unserviceable or other obsolete property in the ordinary course of business or (b) other property no longer necessary for the proper conduct of their business; (F) The Company and its Subsidiaries may sell accounts receivable to an Accounts Receivable Subsidiary in accordance with the provisions described under Section 4.20; (G) The Company and its Subsidiaries may convey, sell, transfer or otherwise dispose of crude oil and refined products in the ordinary course of business; (H) The Company and its Subsidiaries may engage in Asset Sales (a) the Net Cash Proceeds of which are used for (i) payment of cash interest on the Series A/B Notes or the Notes or (ii) a one-time 42 50 payment of cash interest on the TARC Intercompany Loan, (b) in connection with the settlement of litigation or the payment of judgments or (c) the Net Cash Proceeds of which are used in connection with the settlement of litigation or for the payment of judgments; provided, that the aggregate value of assets transferred pursuant to clauses (b) and (c) above from and after the Series A/B Issue Date does not exceed $25,000,000; (I) The Company may transfer the Storage Assets in connection with the financing thereof pursuant to clause (f) of the covenant described herein under Section 4.11 hereof; (J) The Company and its Subsidiaries may dispose of assets of the Company or its Subsidiaries in exchange for capital assets that (i) are for use in a Related Business and (ii) have an aggregate fair market value which, when added to the fair market value of any cash, Cash Equivalents or Publicly Traded Stock received by the Company or any of its Subsidiaries in exchange for such capital assets, is equal to or greater than the aggregate fair market value of the property and assets being disposed of, provided, however, that (A) in no event may the Company and its Subsidiaries, in any 12-month period, dispose of assets pursuant to this paragraph having an aggregate fair market value of in excess of $10 million; (K) The Company may sell common stock of TransTexas to TransTexas; and (L) Unless otherwise required by the foregoing clauses (A) through (K), the proceeds of any Asset Sale permitted thereby shall be used by the Company or its Subsidiaries for purposes not otherwise prohibited by the Indenture. (c) The Company may, within 360 days following the receipt of Net Cash Proceeds from any Asset Sale, apply an amount equal to such Net Cash Proceeds to: (i) the repayment of Senior Debt of the Company or any Guarantor that results in a permanent reduction in the principal amount of such Senior Debt in an amount equal to the principal amount so repaid or (ii) make Capital Expenditures for use in a Related Business or (iii) make cash payments in the ordinary course of business that are not otherwise prohibited by the Indenture, provided that the aggregate amount so used from and after the Series A/B Issue Date does not exceed $20,000,000 (without duplication of amounts used for Capital Expenditures in clause (ii) above). If, upon completion of the 360-day period (the "Trigger Date"), an amount equal to any portion of the Net Cash Proceeds of any Asset Sale shall not have been applied by the Company as described in clauses (i), (ii) or (iii) of the preceding paragraph and such amount together with an amount equal to any remaining net cash proceeds from any prior Asset Sale (such aggregate constituting "Excess Proceeds"), exceeds $10 million, then the Company shall make an offer (the "Offer to Purchase") to purchase from all Holders of the Notes, the Series A/B Notes and holders of any then outstanding Pari Passu Debt required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Notes, the Series A/B Notes and any then outstanding Pari Passu Debt equal to such Excess Proceeds as follows: (l) (i) the Company shall make an offer to purchase from all Holders of the Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1000) of Notes that may be purchased out of an amount (the "Offer Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes, the Series A/B Notes and such Pari Passu Debt, if any and (ii) to the extent required by the Series A/B Notes and such Pari Passu Debt and provided there is a permanent reduction in the 43 51 principal amount of such Series A/B Notes or Pari Passu Debt and a corresponding permanent reduction in the Company's ability to incur Pari Passu Debt or Subordinated Debt, the Company shall make an offer to purchase the Series A/B Notes and such Pari Passu Debt (the "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Offer Amount. (2) The offer price for the Notes shall be payable in cash in an amount equal to 100% of the principal amount of the Notes tendered pursuant to an Offer to Purchase, plus accrued and unpaid interest, if any, to the date such Offer to Purchase is consummated (the "Offer Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offer Price of the Notes tendered pursuant to an Offer to Purchase is less than the Offer Amount relating thereto or the aggregate amount of the Series A/B Notes or Pari Passu Debt that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Debt Amount (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or any portion thereof, for general corporate purposes, subject to the "Limitation on Restricted Payments" covenant set forth in Section 4.3. (3) If the aggregate Offer Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the Offer Amount, Notes to be purchased will be selected on a pro rata basis. Upon completion of an Offer to Purchase and a Pari Passu Offer, the amount of Excess Proceeds shall be reset to zero. The Company, to the extent applicable and if required by law, will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any offer by the Company to purchase the Notes at the option of the holders pursuant to an Offer to Purchase. It is expected that agreements with respect to Senior Debt the Company may enter into would prohibit, and the TARC Intercompany Loan currently prohibits, the repurchase of Debt subordinated to such Senior Debt, which would include the Notes. Failure of the Company to repurchase the Notes validly tendered to the Company pursuant to an Offer to Purchase would create an Event of Default with respect to the Notes. In addition, the subordination provisions of the Indenture prohibit, subject to certain conditions, the repurchase or repayment of the Notes if there is a default under Senior Debt. As a result, the Company may be prohibited from making payment pursuant to an Offer to Purchase in connection with an Asset Sale. Section 4.15 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. It is the intention of the parties hereto to comply strictly with applicable usury laws; accordingly, notwithstanding any provision to the contrary in this Indenture or in any of the documents securing the payment of the Notes or otherwise relating thereto, in no event shall this Indenture or such documents require or permit the payment, charging, taking, reserving, or receiving of any sums constituting interest under applicable laws which exceed the maximum amount permitted by such laws. If any such excess interest is contracted for, charged, taken, reserved, or received in connection with the Notes or in any of the documents securing the payment thereof or 44 52 otherwise relating thereto, or in any communication by the Holders or any other person to the Company or any other person, or in the event all or part of the principal or interest on the Notes shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved, or received on the amount of principal actually outstanding from time to time under the Notes shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) any such excess shall be deemed an accidental and bona fide error and canceled automatically to the extent of such excess, and shall not be collected or collectible, (iii) any such excess which is or has been paid or received notwithstanding this paragraph shall be credited against the then unpaid principal balance on the Notes or refunded to the Company, at the Holders' option, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate allowed under applicable laws as construed by courts having jurisdiction hereof or thereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved, or received in connection herewith which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Notes, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, reserved, or received. The terms of this paragraph shall be deemed to be incorporated in every document, security instrument, and communication relating to this Indenture and the Notes. Section 4.16 Guarantee by Subsidiaries. All future Material Subsidiaries and Subsidiaries that guarantee any pari passu Debt, Series A/B Notes 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 (a "Guarantee"). The Company covenants 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 this Indenture to the extent set forth in this Section 4.16. The liability of each Guarantor under its Guarantee will be limited to the amount of its Adjusted Net Assets. Section 4.17 Intentionally Omitted. 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. Section 4.19 Separate Existence and Formalities. The Company hereby covenants and agrees that: (a) it will maintain procedures designed to prevent commingling of the funds of the Company, its Subsidiaries' and 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' Certificate of Incorporation or By-laws; (c) the Company and its Subsidiaries will maintain separate records and books of account and such records and books of account shall be separate from those of TransAmerican in each case in accordance with generally accepted accounting principles; 45 53 (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 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, other than pursuant to the Services Agreement. Section 4.20 Accounts Receivable Subsidiary. (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 TARC Borrowing Base at any time; (b) The Company may not, nor may it permit any of its Subsidiaries to, sell accounts receivable to an Accounts Receivable Subsidiary except for consideration in an amount not less than that which would be obtained in an arm's length transaction and solely in the form of cash or Cash Equivalents; provided that an Accounts Receivable Subsidiary may pay the purchase price for any such accounts receivable in the form of Accounts Receivable Subsidiary Notes so long as, after giving effect to the issuance of any such Accounts Receivable Subsidiary Notes, the aggregate principal amount of all Accounts Receivable Subsidiary Notes outstanding shall not exceed the greater of $20 million or 20% of the aggregate purchase price paid for all outstanding accounts receivable purchased by an Accounts Receivable Subsidiary since the date of this Indenture (and not written off or required to be written off in accordance with the normal business practice of an Accounts Receivable Subsidiary); (c) The Company may not, nor may it permit any of its Subsidiaries to, enter into any guarantee, subject any of their respective properties or assets (other than the accounts receivable sold by them to an Accounts Receivable Subsidiary) to the satisfaction of any liability or obligation or otherwise incur any liability or obligation (contingent or otherwise), in each case, on behalf of an Accounts Receivable Subsidiary or in connection with any sale of accounts receivable or participation interests therein by or to an Accounts Receivable Subsidiary, other than obligations relating to breaches of representations, warranties, covenants, and other agreements of the Company or any of its Subsidiaries with respect to the accounts receivable sold by the Company or any of its Subsidiaries to an Accounts Receivable Subsidiary or with respect to the servicing thereof; provided that neither the Company nor any of its Subsidiaries shall at any time guarantee or be otherwise liable for the collectibility of accounts receivable sold by them; and (d) The Company 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 46 54 Accounts Receivable Subsidiary in an involuntary case, (B) appoints a Custodian of such Accounts Receivable Subsidiary or for all or substantially all of the property of such Accounts Receivable Subsidiary, or (C) orders the liquidation of such Accounts Receivable Subsidiary, and, with respect to clause (ii) hereof, the order or decree remains unstayed and in effect for 60 consecutive days. Section 4.21 Limitation on Ranking of Future Debt. The Company shall not, directly or indirectly, incur, create, or suffer to exist any Debt (other than the Series A/B Notes) 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 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. Section 4.22 Maintenance of Interest Reserve Account. (a) The Company shall establish and maintain with and at the Trustee a custodial account in the name of the Trustee (or any agent thereof) (the "Interest Reserve Account"), under the sole dominion and control of the Trustee. Funds shall be released from the Interest Reserve Account only in accordance with this Section 4.22. (b) The Company shall, out of the proceeds received by it from the issuance of the Notes, make an initial deposit into the Interest Reserve Account in the amount of $6,000,000 (the "Interest Reserve Amount"), such deposit being of sufficient amount to pay for the first three (3) semi-annual interest payments on the Notes issued on the date hereof that will become due and payable on June 30, 1998, December 30, 1998 and June 30, 1999 (the "Subject Interest Payment Dates"). (c) The Interest Reserve Account will be held in trust by the Trustee for the equal and ratable benefit of the Holders and not commingled with any ordinary deposit or commercial bank account, will be maintained with the corporate trust department of the Trustee for the equal and ratable benefit of the Holders and, to the extent expressly provided herein, for the Company, and will be subject to the provisions of this Agreement; provided, however, that if the Series A/B Indenture has been amended to permit the "Interest Reserve Account" (as defined therein) to be commingled with the Interest Reserve Account hereunder, then such Interest Reserve Accounts may be commingled. In accordance with written instructions received from the Company, the Trustee shall, subject to the Trustee's rights under this Section 4.22, (i) invest amounts on deposit in the Interest Reserve Account in Cash Equivalents in the name of the Trustee as the Company may select, (ii) invest interest paid on the Cash Equivalents referred to in clause (i) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in Cash Equivalents in the name of the Trustee as the Company may select (the Cash Equivalents referred to in clauses (i) and (ii) above being, collectively, "Reserve Account Investments") and (iii) deposit and hold in the Interest Reserve Account all interest and proceeds that are not invested or reinvested in Reserve Account Investments. All disbursements made to the Holders pursuant to this Agreement shall be made by the Trustee irrespective of, and without deduction for, any counterclaim, defense, recoupment or setoff and shall be final, and the Trustee will not seek to recover from any Holder for any reason any such payment once made. All service charges and fees with respect to the Interest Reserve Account shall be paid by the Company. (d) The Company has no right to direct the Trustee to disburse the funds in the Interest Reserve Account, other than the rights, exercisable upon the giving by the Company of not less than one Business Day prior written notice to the Trustee, (i) from time to time during the term of this Agreement, to direct the Trustee to disburse to or for the account of the Company all or any portion of the interest and other earnings on the funds on deposit in the Interest Reserve Account and on Reserve Account Investments and (ii) if the Company optionally redeems the 47 55 Notes, from time to time during the term of this Agreement, to direct the Trustee to disburse to or for the account of the Company all or any portion of the funds on deposit in the Interest Reserve Account in an aggregate amount that bears the same proportion to the aggregate amount of funds in 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; provided, however, that the Trustee shall not be required to disburse any funds pursuant to this paragraph (d) after the occurrence and during the continuance of an Event of Default. 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 costs) incurred to permit such release. (e) The Trustee shall liquidate part or all of the Reserve Account Investments, as necessary, to provide the availability of such funds in the Investment Reserve Account as may be necessary to pay (and shall to the extent funds are in the Interest Reserve Account pay therefrom) each of the first three (3) semi-annual interest payments on the Notes, when and as they come due, and to make such disbursements as may from time to time be requested by the Company as permitted hereby. The Trustee shall disburse funds from the Interest Reserve Account solely for the purposes of making the payments and distributions described hereunder. (f) Promptly after the payment in full of the interest accrued through and including the installment of interest payable on the June 30, 1999 interest payment, the Trustee shall liquidate all Reserve Account Investments remaining and shall disburse the full amount of the funds then on deposit in the Interest Reserve Account to or for the account of the Company, whereupon the Interest Reserve Account shall be closed; provided, however, that the Trustee shall not disburse any funds pursuant to this paragraph (f) after the occurrence and during the continuance of an Event of Default. If any such Event of Default is continuing at the Interest Payment Date following the Subject Interest Payment Dates, the funds in the Interest Reserve Account shall be applied to (and the Trustee shall, to the extend of such funds, pay therefrom) the interest payment due on such Interest Payment Date. Section 4.23 Restriction on Sale and Issuance of Subsidiary Stock. The Company shall not sell, and shall not permit any of its Subsidiaries to, issue or sell, any shares of Capital Stock of any Subsidiary of the Company to any Person other than the Company or a Wholly Owned Subsidiary of the Company unless an amount equal to the net proceeds of such sale is used by the Company within 180 days after the date of such sale for one or more of the purposes specified in Section 4.14(a). ARTICLE V SUCCESSOR CORPORATION Section 5.1 When the Company May Merge, Etc. (a) The Company shall not, and shall not permit any Guarantor to, 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: (1) either (a) the Company or the Guarantor, as the case may be, shall be the continuing Person, or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Guarantor, 48 56 as the case may be, is merged or to which all or substantially all of the properties and assets of the Company, or the Guarantor, as the case may be, are transferred as an entirety or substantially as an entirety (the Company or the Guarantor, as the case may be, or such other Person being hereinafter referred to as the "Surviving Person") shall be a corporation or partnership organized and validly existing under the laws of the United States, any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto executed and delivered to the Trustee on or prior to the consummation of such transaction, in form satisfactory to the Trustee, all the obligations of the Company or the Guarantor, as the case may be, under the Notes and this Indenture; (2) No Default or Event of Default shall exist or shall occur immediately after giving effect to such transaction; (3) on a pro forma consolidated basis, immediately after giving effect to such transaction and the assumption of the obligations contemplated by clause (1), above, and the incurrence or anticipated incurrence of any Debt or Disqualified Capital Stock to be incurred or issued in connection therewith, (x) the Net Worth of the Surviving Person is at least equal to the Net Worth of such predecessor or transferring entity immediately prior to such transaction and (y) except for a merger of the Company 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 repurchase 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 Person could incur $1.00 of additional Senior Debt pursuant to the third paragraph of Section 4.11, as applicable (in all cases for this purpose only, as if the Phase I Completion Date has occurred); (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, assignment, or transfer and such supplemental indenture comply with this Article V and that all conditions precedent herein provided relating to such transaction have been satisfied; and (5) except for a merger of the Company 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 repurchase 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 Standard & Poor's Corporation, Inc., Moody's Investors Service, Inc. or any successor rating agencies to either entity to a rating below that which existed immediately prior to the time the event specified above is first publicly announced. For purposes of this Section 5.1, the Consolidated Fixed Charge Coverage Ratio shall be determined on a pro forma consolidated basis (giving effect to such transaction) for the four fiscal quarters immediately preceding such transaction. (b) For purposes of clause (a), the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company, instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company, on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. (c) Notwithstanding anything contained in the foregoing to the contrary, any Subsidiary of the Company with a Net Worth greater than zero, may merge into the Company (or a wholly owned Subsidiary of the Company) at any time, provided, that the Company, shall have delivered to the Trustee an Officers' Certificate stating that 49 57 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, an Accounts Receivable Subsidiary may merge into the Company, provided, that such merger does not result in a Default or Event of Default hereunder. Section 5.2 Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of assets in accordance with Section 5.1, the Surviving Person formed by such consolidation or into which the Company, 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. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be caused voluntarily or involuntarily or effected, without limitation, by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Note as and when the same becomes due and payable, and the continuance of such default for a period of 30 days; (b) default in the payment of all or any part of the principal of (or premium, if any, applicable to), the Notes when and as the same becomes due and payable at maturity, redemption, by acceleration, or otherwise, including default in the payment of the Offer Price in accordance with Section 4.14 or the Change of Control Purchase Price in accordance with Article XI; (c) default in the observance or performance of, or breach of, any covenant, agreement or warranty of the Company or any of its Subsidiaries contained in the Notes or this Indenture, and continuance of such default or breach for the period and after the notice, if any, specified below; (d) a default which extends beyond any stated period of grace applicable thereto, including any extension thereof, under any mortgage, indenture or instrument under which there is outstanding any Debt of the Company or any of its Subsidiaries with an aggregate principal amount in excess of $20,000,000, 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; (e) a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging the Company or any of 50 58 its Subsidiaries as bankrupt or insolvent, or ordering relief against the Company or any of its Subsidiaries in response to the commencement of an involuntary bankruptcy case, or approving as properly filed a petition seeking reorganization or liquidation of the Company or any of its Subsidiaries under any bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction over the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of the Company, any of its Subsidiaries, or of the property of any such Person, or for the winding up or liquidation of the affairs of any such Person, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of 60 days; (f) the Company or any of its Subsidiaries shall institute voluntary bankruptcy proceedings, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or liquidation under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall, within the meaning of any Bankruptcy Law, become insolvent, fail generally to pay its debts as they become due, or take any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; (g) final judgments not covered by insurance for the payment of money, or the issuance of any warrant of attachment against any portion of the property or assets of the Company or any Subsidiary, which, in the aggregate, equal or exceed $25,000,000 at any one time shall be entered against the Company or any of its Subsidiaries by a court of competent jurisdiction and not be stayed, bonded or discharged for a period (during which execution shall not be effectively stayed) of 60 days (or, in the case of any such final judgment which provides for payment over time, which shall so remain unstayed, unbonded or undischarged beyond any applicable payment date provided therein); or (h) 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 this Indenture) or any Guarantor shall deny or disaffirm its obligations with respect thereto. 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 the Change of Control Purchase Price as required by this 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. A Default under clause (c) above (other than in the case of any Defaults under Sections 4.3, 4.11, 4.14, or 5.1, which Defaults shall be Events of Default without the notice specified in this paragraph or Section 4.7(c) and upon the passage of 10 days) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the outstanding Notes notify the Company and the Trustee of the Default, and the Company does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in principal amount of the Notes then outstanding. In the case of any Event of Default pursuant to the provisions of this Section 6.1 occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Subsidiary with the intention of avoiding the period of time the Notes are not optionally redeemable or the payment of the premium which the Company would have to pay if the Company then had elected to redeem the Notes pursuant to Paragraph 51 59 5 of the Notes, an equivalent premium (or, in the case of an Event of Default prior to the time optional redemptions are permitted, to the extent permitted by law, a premium equal to the stated interest rate of the Notes multiplied by the quotient of (i) the number of full years left to maturity plus one, divided by (ii) seven) shall also become and be immediately due and payable to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. Section 6.2 Acceleration of Maturity Date; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 6.1(e) or (f) relating to the Company or its Subsidiaries) occurs and is continuing, then, and in every such case, unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate Value of then outstanding Notes, by a notice in writing to the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the principal of the Notes (or the Change of Control Purchase Price if the Event of Default includes failure to pay the Change of Control Purchase Price), determined as set forth below, including in each case accrued interest thereon, to be due and payable immediately. If an Event of Default specified in Section 6.1(e) or (f) relating to the Company or its Subsidiaries occurs, all principal and accrued interest on the Notes shall be immediately due and payable on all outstanding Notes without any declaration or other act on the part of the Trustee or the Holders. At any time after such a declaration of acceleration being made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article VI, the Holders of a majority in aggregate Value of then outstanding Notes, by written notice to the Company and the Trustee, may waive, on behalf of all Holders, any such declaration of acceleration if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (1) all accrued but unpaid interest on all Notes, (2) the principal of (and premium, if any, applicable to) any Notes which would become due otherwise than by such declaration of acceleration, and accrued but unpaid interest thereon at the rate borne by the Notes, (3) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes, (4) all sums paid or advanced by the Trustee hereunder and the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and (b) all Events of Default, other than the non-payment of the principal of, premium, if any, and interest on Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.12, including, if applicable, any Event of Default relating to the covenants contained in Section 11.1. Notwithstanding the previous sentence of this Section 6.2, no waiver shall be effective for any Event of Default or event which with notice or lapse of time or both would be an Event of Default with respect to any covenant or provision which cannot be modified or amended without the consent of (x) 66 2/3% in aggregate Value of the Notes or (y) the affected Holder of each of the outstanding Notes, unless (x) 66 2/3% in aggregate Value of the Notes or (y) all such affected Holders, respectively, agree, in writing, to waive such Event of Default or event. No such waiver shall cure or waive any subsequent default or impair any right consequent thereon. 52 60 Section 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if an Event of Default in payment of principal, premium or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal, premium (if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including compensation to, and expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts within 10 days of such demand, the Trustee, in its own name and as trustee of an express trust in favor of the Holders, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. The Trustee shall also be authorized to take whatever additional action at law or in equity may appear to be necessary or desirable to collect the monies necessary to pay the principal, premium (if any) and interest on the Notes. Section 6.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company or any obligor for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise to take any and all actions under the TIA, including (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any debtor-in-possession or Custodian or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. 53 61 Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment, or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.5 Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust in favor of the Holders, and any recovery of judgment shall, after provision for the payment of compensation to, and expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. Section 6.6 Priorities. Any money collected by the Trustee pursuant to this Article VI shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium (if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the Trustee in payment of all amounts due pursuant to Section 7.7; SECOND: To the Holders in payment of the amounts then due and unpaid for principal of, premium (if any) and interest on, the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium (if any) and interest respectively; and THIRD: To whomsoever may be lawfully entitled thereto, the remainder, if any. Section 6.7 Limitation on Suits. No Holder of any Note shall have any right to order or direct the Trustee to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of then outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred or reasonably probable to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other 54 62 Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. Section 6.8 Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision of this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of, and premium (if any) and interest on, such Note on the Maturity Dates of such payments as expressed in such Note and to institute suit for the enforcement of any such payment after such respective dates, and such rights shall not be impaired without the consent of such Holder. Section 6.9 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.7, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.10 Delay or Omission Not Waiver. No delay or omission by the Trustee or by any Holder of any Note to exercise any right or remedy arising upon any Event of Default shall impair the exercise of any such right or remedy or constitute a waiver of any such Event of Default. Every right and remedy given by this Article VI or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 6.11 Control by Holders. The Holder or Holders of a majority in aggregate Value of then outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders not taking part in such direction or that such action may involve the Trustee in personal liability, and (c) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.12 Waiver of Past Default. Subject to Section 6.8, the Holder or Holders of not less than a majority in aggregate Value of the outstanding Notes may, on behalf of all Holders, prior to the declaration of the maturity of the Notes, waive any past default hereunder and its consequences, except a default (a) in the payment of the principal of, premium, if any, or interest on, any Note as specified in clauses (a) and (b) of Section 6.1, or (b) in respect of a covenant or provision hereof which, under Article IX, cannot be modified or amended without the consent of the Holder of each outstanding Note affected or 66 2/3% in aggregate Value of the Notes at the time outstanding, as the case may be; provided that such a default may be waived by the consent of Holders of each outstanding Note affected or 66 2/3% in aggregate value of the Notes outstanding, as the case may be. 55 63 Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair the exercise of any right arising therefrom. Section 6.13 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted to be taken by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the outstanding Notes, or to any suit instituted by any Holder for enforcement of the payment of principal of, or premium (if any) or interest on, any Note on or after the respective Maturity Date expressed in such Note (including, in the case of redemption, on or after the Redemption Date). Section 6.14 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Section 7.1 Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no others, and no covenants or obligations shall be implied in or read into this Indenture which are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 56 64 (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.2 or Section 6.11. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or at the request, order or direction of the Holders or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. (g) The Trustee shall execute and deliver the Intercreditor Agreements and any Subordination Agreements as provided in Section 12.2. Section 7.2 Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. 57 65 (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (g) Whenever by the terms of this Indenture, the Trustee shall be required to transmit notices or reports to any or all Holders, the Trustee shall be entitled to rely on the information provided by the Registrar as to the names and addresses of the Holders as being correct. If the Registrar is other than the Trustee, the Trustee shall not be responsible for the accuracy of such information. Section 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for (i) the use or application of any funds received by a Paying Agent other than the Trustee, (ii) any statement in the Notes, other than the Trustee's certificate of authentication or (iii) the sufficiency of the collateral for the Notes. The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Company hereunder or in any Security Documents, except as specifically set forth herein or therein. Section 7.5 Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee pursuant to Section 4.7(c), the Trustee shall mail to each Noteholder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal (or premium, if any,) of, or interest on, any Note (including all payments due on any Maturity Date), the Trustee may withhold the notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6 Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, if required, mail to each Noteholder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Noteholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Notes are listed. Section 7.7 Compensation and Indemnity. The Company shall pay to the Trustee from time to time compensation for its services (in whatever capacity rendered) in accordance with the Trustee's fee schedule, as may be amended from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and counsel. 58 66 The Company shall indemnify the Trustee (in its capacity as Trustee) and each of its officers, directors, attorneys-in-fact and agents for, and hold it harmless against, any claim, demand, expense (including but not limited to, compensation, disbursements and expenses of the Trustees' agents and counsel), loss or liability incurred by it without negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall provide reasonable cooperation at the Company's expense in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest as reasonably determined by the Trustee between the Company and the Trustee in connection with such defense. The Company need not pay for any settlement made without its written consent, which shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Notes on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal (and premium, if any,) or interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(e) or (f) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The Company's obligations under this Section 7.7 and any lien arising hereunder shall survive the resignation or removal of the Trustee, the discharge of the Company's obligations pursuant to Article VIII and any rejection or termination of this Indenture under any Bankruptcy Law. Section 7.8 Replacement of Trustee. The Trustee may resign by so notifying the Company in writing. The Holder or Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee in writing and may appoint a successor trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver, Custodian, or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holder or Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that and provided that all sums owing to the Trustee provided for in Section 7.7 59 67 have been paid, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holder or Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a)(1), (a)(2) and (a)(5). The Trustee shall comply with TIA Section 310(b). Section 7.11 Preferential Collection of Claims against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. Section 7.12 No Bond. The Trustee shall not be required to give any bond or surety in respect to the execution of its trusts, powers, rights and duties under this Indenture or otherwise in respect of the premises. Section 7.13 Condition to Action. Notwithstanding anything elsewhere in this Indenture to the contrary, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Notes or any other action within the purview of this Indenture, any showings, certificates, opinions, or other information, or corporate action or evidence thereof in addition to that by the terms hereof required, as a condition of such action by the Trustee if reasonably deemed desirable by the Trustee for the purpose of establishing the right to the authentication of any Notes or the taking of any other action by the Trustee. Section 7.14 Investment. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it at the direction of the Company. ARTICLE VIII SATISFACTION AND DISCHARGE Section 8.1 Satisfaction, Discharge of the Indenture and Defeasance of the Notes. The Company shall be deemed to have paid and discharged the entire Debt on the Notes and the provisions of this Indenture shall cease to be of further effect (subject to Sections 8.3 and 8.7), if: 60 68 (a) The Company irrevocably deposits in trust for the benefit of the Holders of the Notes with the Trustee, pursuant to an irrevocable trust agreement in form and substance reasonably satisfactory to the Trustee, (i) U.S. Legal Tender, (ii) U.S. Government Obligations or (iii) a combination thereof which, after payment of all Federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, through the payment of principal and interest will provide, not later than one day before the due date of payment in respect of the Notes, U.S. Legal Tender in an amount which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof (in form and substance reasonably satisfactory to the Trustee) delivered to the Trustee, is sufficient to pay the principal of, premium, if any, and each installment of principal and interest on the Notes then outstanding, on the 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; (b) Such deposits shall not cause the Trustee to have a conflicting interest as defined in and for purposes of the TIA; (c) No Default or Event of Default relating to clauses (e) or (f) of Section 6.1 shall have occurred or be continuing on the date of such deposit or shall occur on or before the 91st day (or one day after such greater period of time in which any such deposit of trust funds may remain subject to set aside or avoidance under bankruptcy or insolvency laws) after the date of such deposit, and such deposit will not result in a Default or Event of Default under this Indenture or a breach or violation of, or constitute a default under, any other instrument to which the Company or any Subsidiary of the Company is a party or by which it or its property is bound; (d) The deposit, defeasance and discharge will not be deemed, or result in, a Federal income taxable event to the Holders of the Notes and the Holders will be subject to Federal income tax in the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (e) The deposit shall not result in the Company, the Trustee or the trust being subject to regulation under the Investment Company Act of 1940; (f) After the passage of 90 days (or any greater period of time in which any such deposit of trust funds may remain subject to set aside or avoidance under Bankruptcy Laws insofar as those laws apply to the Company) following the irrevocable deposit of the trust funds, such funds will not be subject to any set aside or avoidance under Bankruptcy Laws affecting creditors' rights generally; and (g) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (who may be outside counsel to the Company, but not in-house counsel to the Company), each in form and substance satisfactory to the Trustee, stating that all conditions precedent specified herein relating to the defeasance contemplated by this Section 8.1 have been complied with. In the event all or any portion of the Notes are to be redeemed through such irrevocable trust, the Company must make arrangements satisfactory to the Trustee, at the time of such deposit, for the giving of the notice of such redemption or redemptions by the Trustee in the name and at the expense of the Company. In the event that the Company takes the necessary action to comply with the provisions described in this Section 8.1 and the Notes are declared due and payable because of the occurrence of an Event of Default within the time period specified in Section 8.1(c), or at any time under Section 8.3, the Company will remain liable for all amounts due on the Notes at the time of acceleration resulting from such Event of Default in excess of the 61 69 amount of U.S. Legal Tender and U.S. Government Obligations deposited with the Trustee pursuant to this Section 8.1 at the time of such acceleration. Section 8.2 Termination of Obligations Upon Cancellation of the Notes. In addition to the Company's rights under Section 8.1, the Company may terminate all of its respective obligations under this Indenture (subject to Sections 8.3 and 8.7) when: (a) all Notes theretofore authenticated and delivered (other than Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.7) have been delivered to the Trustee for cancellation; (b) the Company has paid or caused to be paid all sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with. Section 8.3 Survival of Certain Obligations. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes referred to in Section 8.1 or 8.2, the respective obligations of the Company and the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.11, 2.12, Article III, 4.1, 4.2, 4.4, 6.8, 7.7, 7.8, 8.5, 8.6, 8.7 and this Section 8.3 shall survive until the Notes are no longer outstanding, and thereafter the obligations of the Company and the Trustee under Sections 6.8, 7.7, 7.8, 8.5, 8.6, 8.7 and this Section 8.3 shall survive. Nothing contained in this Article VIII shall abrogate any of the obligations or duties of the Trustee under this Indenture. Section 8.4 Acknowledgment of Discharge by Trustee. After (i) the conditions of Section 8.1 or 8.2 have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i), above, relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon request shall acknowledge in writing the discharge the Company's obligations under this Indenture except for those surviving obligations specified in Section 8.3. Section 8.5 Application of Trust Assets. The Trustee shall hold any U.S. Legal Tender or U.S. Government Obligations deposited with it in the irrevocable trust established pursuant to Section 8.1. The Trustee shall apply the deposited U.S. Legal Tender or U.S. Government Obligations, together with earnings thereon, through the Paying Agent (other than the Company or any Subsidiary of the Company), in accordance with this Indenture and the terms of the irrevocable trust agreement, to the payment of principal of and interest on the Notes. Section 8.6 Repayment to the Company. Upon termination of the trust established pursuant to Section 8.1, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them. The Trustee and the Paying Agent shall pay to the Company upon request, and, if applicable, in accordance with the irrevocable trust established pursuant to Section 8.1, any U.S. Legal Tender or U.S. Government Obligations held by them for the payment of principal of or interest on the Notes that remain unclaimed for two years after the date on which such payment shall have become due; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once, in a newspaper customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and 62 70 that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. After payment to the Company, Holders entitled to such payment must look to the Company for such payment as general creditors unless an applicable abandoned property law designates another Person. Section 8.7 Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture, the Security Documents and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 or 8.2 until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2; provided, however, that if the Company has made any payment of principal of or interest on any Notes because of the reinstatement of its obligations, the Company shall be surrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Supplemental Indentures Without Consent of Holders. Without the consent of any Holder, the Company 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 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; or (d) to comply with the TIA. Section 9.2 Amendments, Supplemental Indentures and Waivers with Consent of Holders. Subject to Section 6.8, with the consent of the Holders of not less than a majority in aggregate Value of then outstanding Notes, by written act of said Holders (including an electronic mechanism utilized by the Depository Trust Company as a means of receiving consents or tenders of securities) delivered to the Company and the Trustee, the Company, when authorized by Board Resolutions, and the Trustee may amend or supplement this Indenture, the Notes or enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or 63 71 changing in any manner or eliminating any of the provisions of this Indenture or the Notes or of modifying in any manner the rights of the Holders under this Indenture or the Notes; provided, that no such modification may, without the consent of the Holders of not less than 66 2/3 in aggregate Value of the Notes at the time outstanding, (i) prior to a Change of Control, reduce the Change of Control Purchase Price or alter the provisions of Article XI or (ii) prior to the date upon which an Offer to Purchase is required to be made, reduce the Offer Price or alter the provisions of Section 4.14 in a manner adverse to the Holders. Subject to Section 6.8, the Holder or Holders of not less than a majority, in aggregate Value of then outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes; provided, that no such waiver may, without the consent of the Holders of not less than 66 2/3 in aggregate Value of the Notes at the time outstanding, have the effect of (i) prior to a Change of Control, reducing the Change of Control Purchase Price or altering the provisions of Article XI or (ii) prior to the date upon which an Offer to Purchase is required to be made, reduce the Offer Price or alter the provisions of Section 4.14 in a manner adverse to the Holders. Notwithstanding any of the above, however, no such amendment, supplemental indenture or waiver shall, without the consent of the Holder of each outstanding Note affected thereby: (a) reduce the percentage of Value of Notes whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Notes; (b) reduce the rate or extend the time for payment of interest on any Note; (c) (i) reduce the principal amount of any Note or (ii) after the date upon which a Change of Control Offer is required to be made, reduce the Change of Control Purchase Price or (iii) after the date upon which an Offer to Purchase is required to be made, reduce the to Purchase Offer Price or (iv) reduce the Redemption Price; (d) change the Stated Maturity or the payment date of any installment of principal of, or the payment date of any installment of interest on, any Note; (e) (i) alter the redemption provisions of Article III or of paragraph 5 of the Notes or (ii) after the date upon which a Change of Control Offer is required to be made, alter the terms or provisions of Article XI; (f) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders of the Notes (except to increase any required percentage or to provide that certain other provisions hereof cannot be modified or waived without the consent of the Holders of each outstanding Note affected thereby) or the rights of Holders to recover the principal or premium of, interest on, or redemption payment with respect to, any Note; (g) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or (h) make the principal of, or the interest on, any Note payable with anything or in any manner other than as provided for in this Indenture (including changing the place of payment where, or the coin or currency in which, any Note or any premium or the interest thereon is payable) and the Notes as in effect on the date hereof. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of 64 72 the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. After an amendment, supplement or waiver under this Section 9.2 or 9.4 becomes effective, it shall bind each Holder. In connection with any amendment, supplement or waiver under this Article IX, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Section 9.3 Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. Section 9.4 Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to his Note or portion of his Note by written notice to the Company or the Person designated by the Company as the Person to whom consents should be sent if such revocation is received by the Company or such Person before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be the date so fixed by the Company notwithstanding the provisions of the TIA. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date, and only those Persons (or their duly designated proxies), shall be entitled to revoke any consent previously given, regardless of whether such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Noteholder; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal and premium of and interest on a Note, on or after the respective dates set for such amounts to become due and payable expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates. Section 9.5 Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee or require the Holder to put an appropriate notation on the Note. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment, supplement or waiver. Section 9.6 Trustee to Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article IX, provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee at the expense of the Company shall be entitled to receive, and shall be fully 65 73 protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article IX is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF NOTEHOLDERS Section 10.1 Purposes for Which Meetings May Be Called. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes: (a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VI; (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article VII; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holder or Holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. Section 10.2 Manner of Calling Meetings. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place in the City of New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Noteholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to the Company and to the Holders at their last addresses as they shall appear on the registration books of the Registrar, not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Noteholders shall be valid without notice if the Holders of all Notes then outstanding are present in Person or by proxy, or if notice is waived before or after the meeting by the Holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3 Call of Meetings by Company or Holders. In case at any time the Company, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or the Holders of Notes in the amount above specified may determine the time and place in the City of New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of 66 74 a general circulation in the City of New York, State of New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. Section 10.4 Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Noteholders, a Person shall (a) be a registered Holder of one or more Notes, or (b) be a Person appointed by an instrument in writing as proxy for the registered Holder or Holders of Notes. The only Persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.5 Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Notes entitled to vote at such meeting, in which case those and only those Persons who are Holders of Notes at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting regardless of whether they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote. At any meeting each Noteholder or proxy shall be entitled to one vote for each $1,000 Value of Notes held or represented by him; provided, however that no vote shall be cast or counted at any meeting in respect of any Notes challenged as not outstanding and ruled by the chairman of the meeting to be not then outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holder or Holders of a majority in aggregate Value of the Notes represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting at the Meeting and Record to Be Kept. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballots on which shall be subscribed the signatures of the Holders of Notes or of their representatives by proxy and the principal amount of the Notes voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. 67 75 Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 Exercise of Rights of Trustee or Noteholders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article X shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE XI RIGHT TO REQUIRE REPURCHASE Section 11.1 Repurchase of Notes at Option of the Holder Upon Change of Control. (a) In the event that a Change of Control occurs, each Holder of Notes shall have the right, at such Holder's option, upon the terms and conditions of this Article XI, to require the Company to repurchase all or any part of such Holder's Notes (provided that the principal amount of such Notes at maturity must be $1,000 or an integral multiple thereof) on a date that is no later than 60 Business Days after the occurrence of a Change of Control (the date on which the repurchase is effected being referred to herein as the "Change of Control Payment Date"), at a cash purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, on and including the Change of Control Payment Date. (b) Within 20 Business Days after the Company knows, or reasonably should know, of the occurrence of a Change of Control, the Company shall make an irrevocable unconditional offer (a "Change of Control Offer") to the Holders to purchase for U.S. Legal Tender all of the Notes pursuant to the offer described in clause (c) of this Section 11.1 at the Change of Control Purchase Price. Within five Business Days after each date upon which the Company knows, or reasonably should know, of the occurrence of a Change of Control requiring the Company to make a Change of Control Offer pursuant to this Section 11.1, the Company shall so notify the Trustee. (c) Notice of a Change of Control Offer shall be sent, at least 20 Business Days prior to the Final Change of Control Put Date (as defined below), by first class mail, by the Company to each Holder at its registered address, with a copy to the Trustee. The notice to the Holders shall contain all instructions and materials required by applicable law and shall contain or make available to Holders other information material to such Holders' decision to tender Notes pursuant to the Change of Control Offer. The notice, which shall govern the terms of the Offer, shall state: (1) that the Change of Control Offer is being made pursuant to such notice and this Section 11.1 and that all Notes, or portions thereof, tendered will be accepted for payment; (2) the Change of Control Purchase Price, the Change of Control Payment Date and the Final Change of Control Put Date (as defined below); (3) that any Note, or portion thereof, not tendered or accepted for payment will continue to accrue interest, if interest is then accruing; (4) that, unless the Company defaults in depositing U.S. Legal Tender with the Paying Agent in accordance with the last paragraph of this clause (c), or payment is otherwise prevented, any Note, or portion thereof, 68 76 accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Note, or portion thereof, purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent (which may not for purposes of this Section 11.1, notwithstanding anything in this Indenture to the contrary, be the Company or any Affiliate of the Company) at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date (the "Final Change of Control Put Date"); (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, prior to the close of business on the Final Change of Control Put Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder is withdrawing and a statement containing a facsimile signature that such Holder is withdrawing his election to have such principal amount of Notes purchased; (7) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; and (8) a brief description of the events resulting in such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer prior to the close of business on the Final Change of Control Put Date, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Change of Control Purchase Price (including accrued and unpaid interest) of all Notes so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate listing the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the Change of Control Purchase Price (including accrued and unpaid interest), and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note equal in principal amount, to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Any such Change of Control Offer shall comply with all applicable provisions of Federal and state laws, rules and regulations, including those regulating tender offers, if applicable, and, if such laws, rules or regulations require or prohibit any action inconsistent with the foregoing, compliance by the Company with such laws, rules and regulations will not constitute a breach of the Company's obligations with respect to the foregoing. ARTICLE XII SUBORDINATION Section 12.1 Notes Subordinated to Senior Indebtedness. The Company and each Holder, by its acceptance of Notes, agree that (a) the payment of the principal of and interest on the Notes and (b) any other payment in respect of the Notes, including on account of the acquisition or redemption of the Notes by the Company (including, without limitation, pursuant to Article XI) is subordinated, to the extent and in the manner provided in this Article XII, to the prior payment in full of all Senior Debt 69 77 of the Company, whether outstanding at the date of this Indenture or thereafter created, incurred, assumed or guaranteed, and that these subordination provisions are for the benefit of the holders of Senior Debt. This Article XII shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Debt, and such provisions are made for the benefit of the holders of Senior Debt, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Section 12.2 No Payment on Securities in Certain Circumstances. (a) 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 (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. (b) 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 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 agreement 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. (c) In the event that, notwithstanding 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 70 78 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. Section 12.3 Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization. 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 marshalling of assets or liabilities, (i) the holders of all Senior Debt of the Company or such Guarantor, as applicable, will first be entitled to receive payment in full in cash or Cash Equivalents or otherwise to the extent holders accept satisfaction of amounts due by settlement in other than cash or Cash Equivalents (or have such payment duly provided for) before the Holders are entitled to receive any payment on account of any Obligation in respect of the Notes, including the principal of, premium, if any, and interest on the Notes (or liquidated damages pursuant to the registration rights agreement relating to the Notes) (other than Junior Securities) and (ii) any payment or distribution of assets of the Company or such Guarantor of any kind or character from any source, whether in cash, property or securities (other than Junior Securities) to which the Holders or the Trustee on behalf of the Holders would be entitled (by set-off or otherwise) but for the subordination provisions contained in the Indenture, will be paid by the liquidating trustee or agent or other person 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. Section 12.4 Securityholders to Be Subrogated to Rights of Holders of Senior Debt. Subject to the payment in full of all Senior Debt of the Company as provided herein, the Holders of Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until all amounts owing on the Notes shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of such Senior Debt by the Company, or by or on behalf of the Holders by virtue of this Article XII, which otherwise would have been made to the Holders shall, as between the Company and the Holders, be deemed to be payment by the Company or on account of such Senior Debt, it being understood that the provisions of this Article XII are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Senior Debt, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article XII shall have been applied, pursuant to the provisions of this Article XII, to the payment of amounts payable under Senior Debt of the Company, then the Holders shall be entitled to receive from the holders of such Senior Debt any payments or distributions received by such holders of Senior Debt in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Debt in full. 71 79 Section 12.5 Obligations of the Company Unconditional. Nothing contained in this Article XII or elsewhere in this Indenture or in the Notes is intended to or shall impair as between the Company and the Holders, the obligation of each such Person, which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, interest on, and Liquidated Damages with respect to, the notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XII, of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Notwithstanding anything to the contrary in this Article XII or elsewhere in this Indenture or in the Notes, upon any distribution of assets of the Company referred to in this Article XII, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII so long as such court has been apprised of the provisions of, or the order, decree or certificate makes reference to, the provisions of this Article XII. Nothing in this Section 12.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. Section 12.6 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent shall have received, no later than one Business Day prior to such payment, written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 12.7 Application by Trustee of Assets Deposited with It. Amounts deposited in trust with the Trustee pursuant to and in accordance with Article VIII shall be for the sole benefit of the Holders of the Notes and, to the extent allocated for the payment of Notes, shall not be subject to the subordination provisions of this Article XII. Otherwise, any deposit of assets with the Trustee or the Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; provided that, if prior to one Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 12.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. 72 80 Section 12.8 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. No right of any present or future holders of any Senior Debt to enforce subordination provisions contained in this Article XII shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Debt may extend, renew, modify or amend the terms of the Senior Debt or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. Section 12.9 Holders of Notes Authorize Trustee to Effectuate Subordination of Securities. Each Holder of the Notes by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provisions contained in this Article XII and to protect the rights of the Holders pursuant to this Indenture, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors of the Company), the immediate filing of a claim for the unpaid balance of his Notes in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or their representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or their representative to authorize or consent to or accept or adopt on behalf of any Holder of Notes any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or their representative to vote in respect of the claim of any Holder of Note in any such proceeding. Section 12.10 Right of Trustee to Hold Senior Debt. The Trustee shall be entitled to all of the rights set forth in this Article XII in respect of any Senior Debt at any time held by it to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Section 12.11 Article XII Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, interest on, or Liquidated Damages with respect to, the Notes by reason of any provision of this Article XII shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1 or in any way prevent the Holders from exercising any right hereunder other than the right to receive payment on the Notes. Section 12.12 No Fiduciary Duty of Trustee to Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders (other than for its willful misconduct or negligence) if it shall in good faith mistakenly pay over or distribute to the Holders of Securities or the Company or any other Person, cash, property 73 81 or securities to which any holders of Senior Debt shall be entitled by virtue of this Article XII or otherwise. Nothing in this Section 12.12 shall affect the obligation of any other such Person to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Debt or their representative. ARTICLE XIII MISCELLANEOUS Section 13.1 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of, or otherwise conflicts with any of the provisions of, the TIA, the imposed duties, or provisions upon qualification of this Indenture under the TIA, shall control. Section 13.2 Notices. Any notices or other communications to the Company or the Trustee required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East, Suite 320 Houston, Texas 77032 Attention: Edwin B. Donahue if to the Trustee: First Union National Bank Corporate Trust Department 10 State House Square CT 5845 Hartford, CT 06103-3698 Attention: W. Jeffrey Kramer The Company or the Trustee by notice to each other party may designate additional or different addresses as shall be furnished in writing by such party. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered, if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five Business Days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, regardless of whether the addressee receives it. 74 82 Section 13.3 Communications by Holders with Other Holders. Noteholders may communicate pursuant to TIA Section 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). Section 13.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (in form and substance reasonably satisfactory to the Trustee) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (in form and substance reasonably satisfactory to the Trustee) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to regardless of whether such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Noteholders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions at such place are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 13.8 Governing Law. THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH 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. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE NOTES AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND 75 83 UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY NOTEHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. Section 13.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10 No Recourse against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or any of its Subsidiaries shall not have any liability for any obligations of the Company or such Subsidiary under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Noteholder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. Section 13.11 Successors. All agreements of the Company in this Indenture and the Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.12 Duplicate Originals. All parties may sign any number of copies or counterparts of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent the same agreement. Section 13.13 Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. Section 13.14 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and the Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 76 84 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: ------------------------------------------- Ed Donahue, Vice President and Secretary [Seal] Attest: ------------------------------------ Tim Moore, Assistant Secretary FIRST UNION NATIONAL BANK as Trustee By: ------------------------------------------- Diane M. Welsh, Vice President 85 EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Unit Exhibit C - Certificate of Transferor 86 EXHIBIT A (FACE OF NOTE) [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. - ------------------------ 1 This paragraph should be included only if the Note is issued in global form. A-1 87 [FORM OF NOTE] TRANSAMERICAN REFINING CORPORATION 16% SENIOR SUBORDINATED NOTE DUE 2003 No. $ THIS NOTE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") WITHIN THE MEANING OF SECTION 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE DATE OF THIS NOTE IS MARCH 16, 1998. INFORMATION REGARDING THE ISSUE PRICE, THE TOTAL AMOUNT OF OID, AND THE YIELD TO MATURITY MAY BE OBTAINED BY WRITTEN REQUEST OF THE HOLDERS OF THIS NOTE FROM THE COMPANY, 1300 NORTH SAM HOUSTON PARKWAY EAST, SUITE 320, HOUSTON, TEXAS 77032, ATTENTION: INVESTOR RELATIONS MANAGER, TELEPHONE NUMBER (281) 986-8811. CUSIP [ ] TransAmerican Refining Corporation, a Texas corporation (hereinafter called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________, or registered assigns, the principal sum of ________________ Dollars, on June 30, 2003. Interest Payment Dates: June 30 and December 30, commencing June 30, 1998 Record Dates: June 15 and December 15 Reference is made to the further provisions of this Note on the reverse side, which will, for all purposes, have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Dated: TRANSAMERICAN REFINING CORPORATION By: ------------------------------------ Name: Title: Attest: - --------------------------- Secretary [Seal] A-2 88 Trustee's Certificate of Authentication: This is one of the Notes referred to in the within-mentioned Indenture: First Union National Bank By: ------------------------------------- Authorized Signature A-3 89 (BACK OF NOTE) TRANSAMERICAN REFINING CORPORATION 16% SENIOR SUBORDINATED NOTE DUE 2003 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 a rate of 18% per annum compounded semi- annually. The Company will pay interest semi-annually on June 30 and December 30 of each year (each, an "Interest Payment Date"), commencing June 30, 1998. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 30, 1997. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Except as provided below, the Company shall pay principal and interest in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company shall deliver any such interest payment to the Paying Agent who shall remit such payment to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, First Union National Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or an Affiliate of it may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture, dated as of March 16, 1998 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are senior subordinated obligations of the Company limited in aggregate principal amount to $25,000,000. A-4 90 5. Optional Redemption. The Notes may be redeemed in whole or from time to time in part at any time at the option of the Company, at the Redemption Price (expressed as a percentage of principal amount) set forth below with respect to the indicated Redemption Date, in each case, together with any accrued but unpaid interest to the Redemption Date.
If redeemed during the period indicated below Redemption Price ------------------------ ---------------- December 30, 1997 - June 29, 20.0. . . . . . . 116.00% June 30, 2000 - June 29, 2001 . . . . . . . . 110.67% June 30, 2001 - June 29, 2002 . . . . . . . . 105.33% June 30, 2002 - and thereafter . . . . . . . . 100.00%
Any such redemption will comply with Article III of the Indenture. 6. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 15 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent on such Redemption Date the Notes called for redemption will cease to bear interest and the only right of the Holders of such Notes will be to receive payment of the Redemption Price and any accrued and unpaid interest to the Redemption Date. 7. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of, or exchange Notes in accordance with, the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as the owner of it for all purposes. 9. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money back to the Company at its written request. Thereafter, all liability of the Trustee and such Paying Agent(s) with respect to such money shall cease. A-5 91 10. Discharge Prior to Redemption or Maturity. If the Company at any time deposits into an irrevocable trust with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Notes). 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate Value of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate Value of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency (provided such amendment or supplement does not adversely affect the rights of any Holder of a Note). 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, Incur additional Debt or issue Disqualified Capital Stock, make payments in respect of its Capital Stock, enter into transactions with Related Persons, incur Liens, sell assets, change the nature of its business, merge or consolidate with any other Person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must deliver a quarterly report to the Trustee on compliance with such limitations. 13. Change of Control. In the event there shall occur any Change of Control, each Holder of Notes shall have the right, at such Holder's option but subject to the limitations and conditions set forth in the Indenture, to require the Company to purchase on the Change of Control Payment Date in the manner specified in the Indenture, all or any part (in integral multiples of $1,000) of such Holder's Notes at a Change of Control Purchase Price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, on and including the Change of Control Payment Date. 14. Successors. When a successor assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 15. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate combined Value of the Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate Value of the Notes then A-6 92 outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal, premium, if any, or interest, including a Default at any Maturity Date), if it determines that withholding notice is in their interest. 16. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, past, present or future, of the Company or any of its Subsidiaries or any successor corporation shall have any liability for any obligation of the Company or such Subsidiary under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 18. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture. 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of March 16, 1998, among the Company and the Jefferies & Company, Inc. (the "Registration Rights Agreement"), including but not limited to the obligations of the Holders with respect to a registration and the indemnification of the Company and the Purchasers (as defined therein) to the extent provided therein. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: TransAmerican Refining Corporation, 1300 North Sam Houston Parkway East, Suite 320, Houston, Texas 77032. A-7 93 21. Ranking. Payment of principal, premium, if any, interest on and Liquidated Damages with respect to the Notes is subordinated, to the extent set forth in the Indenture, to the prior payment of all Senior Debt. The Notes rank pari passu with the Series A/B Notes in right of payment. A-8 94 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint_______________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Signature ----------------- ------------------------------ (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - ---------------------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agents Medallion Program (STAMP); (2) The New York Stock Exchange Medallion Signature Program (MSP); (3) The Stock Exchange Medallion Program (SEMP). A-9 95 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, check the appropriate box below: [ ] Section 4.14 [ ] Article XI If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, as the case may be, state the principal amount (in integral multiples of $1,000) you want to be purchased: $_____________ Date: Signature ----------------- ------------------------------ (Sign exactly as your name appears on the face of this Note) Your Social Security or Tax Identification Number: ------------------------ Signature Guarantee:* - ------------------------------ * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agents Medallion Program (STAMP); (2) The New York Stock Exchange Medallion Signature Program (MSP); (3) The Stock Exchange Medallion Program (SEMP). A-10 96 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES2 The following exchanges of a part of this Global Note for Definitive Notes have been made:
Amount of decrease Amount of increase Principal Amount Signature of in Principal Amount in Principal Amount of this Global Note authorized signatory Date of Exchange of this Global Note of this Global Note decrease (or increase)of Trustee - ------------------------------------------------------------------------------------------------------------------------
- ---------------------------- 2 This should be included only if the Note is issued in global form. A-11 97 EXHIBIT B [Form of Unit] TRANSAMERICAN REFINING CORPORATION UNITS CONSISTING OF 16% SENIOR SUBORDINATED NOTES DUE 2003 AND COMMON STOCK PURCHASE WARRANTS No. Units CUSIP [ ] Each Unit consists of $1,000 principal amount of 16% Senior Subordinated Notes due 2003 of TransAmerican Refining Corporation, a Texas corporation (hereinafter called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to) and one Warrant to purchase 13.344257 shares of Common Stock, par value $0.01 per share, of the Company for $0.01 per share (subject to adjustment) at any time before 5:00 p.m., New York City time, on June 30, 2003 (the "Expiration Date"). The Notes and the Warrants are not separately transferable until the earlier of (i) December 30, 1998, (ii) commencement of the Exchange Offer (as defined in the Indenture) and (iii) such other date as determined by Jefferies & Company, Inc. The terms of the Warrants are governed by a Warrant Agreement dated as of March 16, 1998 (the "Warrant Agreement") between the Company and First Union National Bank, as Warrant Agent (the "Warrant Agent"), and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit consents by acceptance hereof. Copies of the Warrant Agreement are on file at the office of the Warrant Agent at First Union National Bank, 10 State House Square CT 5845, Hartford CT 06103-3698, Attention: Corporate Trust Department, and are available to any Warrant holder on written request and without cost. The Warrant shall be void unless exercised before 5:00 p.m. New York City time on the Expiration Date. The Company, for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of ____________ Dollars, on June 30, 2003. Interest Payment Dates: June 30 and December 30, commencing June 30, 1998 Record Dates: June 15 and December 15 Reference is made to the further provisions of the Note evidenced by this Unit on the reverse side, which will, for all purposes, have the same effect as if set forth at this place. B-1 98 IN WITNESS WHEREOF, the Company has caused this Unit to be signed manually or by facsimile by its duly authorized officers.. Dated: TRANSAMERICAN REFINING CORPORATION By: ---------------------------------- Attest: - -------------------------- Secretary [Seal] B-2 99 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Unit evidences one of those Notes described in the within-mentioned Indenture. FIRST UNION NATIONAL BANK, as Trustee as Trustee By: ------------------------------- Authorized Signatory Dated: B-3 100 TRANSAMERICAN REFINING CORPORATION UNITS CONSISTING OF 16% SENIOR SUBORDINATED NOTES DUE 2003 AND COMMON STOCK PURCHASE WARRANTS 1. Interest. TransAmerican Refining Corporation, a Texas corporation (the "Company"), promises to pay interest on the principal amount of the Notes at a rate of 16% per annum (subject to adjustment). To the extent it is lawful, the Company promises to pay interest on any interest payment due but unpaid on such principal amount at a rate of 18% per annum (subject to adjustment) compounded semi-annually. The Company will pay interest semi-annually on June 30 and December 30 of every year (each, an "Interest Payment Date"), commencing June 30, 1998. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 30, 1997. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Except as provided below, the Company shall pay principal and interest in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or the Company may mail any such interest payment to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, First Union National Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or so-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture, dated as of March 16, 1998 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA, as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are senior subordinated obligations of the Company limited in aggregate principal amount to $25,000,000. B-4 101 5. Optional Redemption. The Notes may be redeemed in whole or from time to time in part at any time at the option of the Company, at the Redemption Price (expressed as a percentage of the principal amount thereof) set forth below with respect to the indicated Redemption Date, in each case, together with any accrued but unpaid interest to the Redemption Date.
If redeemed during the period indicated below Redemption Price ---------------------- ---------------- December 30, 1997 - June 29, 2000 . . . . . . 116.00% June 30, 2000 - June 29, 2001 . . . . . . . . 110.67% June 30, 2001 - June 29, 2002 . . . . . . . . 105.33% June 30, 2002 and thereafter . . . . . . . . 100.00%
Any such redemption will comply with Article III of the Indenture. 6. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 15 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent on such Redemption Date the Notes called for redemption will cease to bear interest and the only right of the Holders of such Notes will be to receive payment of the Redemption Price and any accrued and unpaid interest to the Redemption Date. 7. Denominations; Transfer: Exchange. The Notes are in registered form, without coupons, in denominations of $l,000 and integral multiples of $1,000. A Holder may register the transfer of, or exchange Notes in accordance with, the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as the owner of it for all purposes. 9. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money back to the Company at its written request. After that, all liability of the Trustee and such Paying Agent(s) with respect to such money shall cease. B-5 102 10. Discharge Prior to Redemption or Maturity. If the Company at any time deposits into an irrevocable trust with the Trustee U.S. legal Tender or Government Securities sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Notes). 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate value of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate value of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency (provided such amendment or supplement does not adversely affect the rights of any Holder of a Note). 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, Incur additional Debt or issue Disqualified Capital Stock, make payments in respect of its Capital Stock, enter into transactions with Related Persons, incur Liens, sell assets, change the nature of its business, merge or consolidate with any other Person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must deliver a quarterly report to the Trustee on compliance with such limitations. 13. Change of Control. In the event there shall occur any Change of Control, each Holder of Notes shall have the right, at such Holder's option but subject to the limitations and conditions set forth in the Indenture, to require the Company to purchase on the Change of Control Payment Date in the manner specified in the Indenture, all or any part (in integral multiples of $1,000) of such Holder's Notes at a Change of Control Purchase Price equal to 101 % of the principal amount thereof, together with accrued and unpaid interest, if any, to the Change of Control Payment Date. 14. Successors. When a successor assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 15. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in aggregate value of the Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate value of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal, premium, if any, or interest, including a Default at any Maturity Date), if it determines that withholding notice is in their interest. B-6 103 16. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, past, present or future, of the Company or any of its Subsidiaries or any successor corporation shall have any liability for any obligation of the Company or such Subsidiary under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. Authentication. The Note evidenced by this Unit shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Unit. 18. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Notes and the Units as a convenience to the holders of the Notes and holders of the Units. No representation is made as to the accuracy of such numbers as printed on the Notes or the Units and reliance may be placed only on the other identification numbers printed thereon and hereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note evidenced by this Unit, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of March 16, 1998, between the Company and Jefferies & Company, Inc. (the "Registration Rights Agreement"), including but not limited to the obligations of the Holders with respect to a registration and the indemnification of the Company and the Purchasers (as defined therein) to the extent provided therein. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: TransAmerican Refining Corporation, 1300 North Sam Houston Parkway East, Suite 320, Houston, Texas 77032. 21. Ranking. Payments of principal, premium, if any, interest on and Liquidated Damages with respect to, the Notes is subordinated, to the extent set forth in the Indenture, to the prior payment of all Senior Debt. The Notes rank pari passu with the Series A/B Notes in right of payment. B-7 104 TRANSAMERICAN REFINING CORPORATION DEPOSIT OF WARRANTS TO PURCHASE COMMON STOCK OF TRANSAMERICAN REFINING CORPORATION Under the terms of the Warrant Agreement, and until such time as the Holder of this Unit shall have surrendered this Unit to the Warrant Agent for the exchange of this Unit, in whole or in part, for one or more Warrant Certificates (as defined in the Warrant Agreement) and one or more Notes of a like aggregate principal amount and of authorized denominations, the Holder of this Unit is for each Unit evidenced by this certificate, the beneficial owner of one Warrant expiring June 30, 2003, entitling the holder thereof initially to purchase 13.344257 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of the Company (subject to adjustment as provided in the Warrant Agreement). The Company has deposited with the Warrant Agent, as custodian for Holders of Units, certificates for such Warrants. Prior to the exchange of this Unit for one or more Warrant Certificates and one or more Notes, beneficial ownership of such Warrants is transferable only by the transfer of this Unit pursuant to the Indenture. After such exchange, ownership of a Warrant is transferable only by the transfer of the certificate representing such Warrant in accordance with the provisions of the Warrant Agreement. By accepting a Unit, each Holder of this Unit shall be bound by all of the terms and provisions of the Warrant Agreement (a copy of which is available on request to the Company or the Warrant Agent) as fully and effectively as if such Holder had signed the same. B-8 105 ELECTION TO EXERCISE WARRANTS The undersigned registered Holder of this Unit hereby irrevocably elects to exercise Warrants (evidenced by Warrant Certificates deposited with the Warrant Agent the beneficial ownership of which is evidenced by this Unit) representing the right to receive ___ shares of Common Stock, and in payment of the Warrant Price (as defined in the Warrant Agreement) the undersigned herewith tenders payment in money of the United States of America or by certified or official bank check in lawful money of the United States of America to the order of TransAmerican Refining Corporation in the amount of $__________. The undersigned requests that a certificate representing the Common Stock issuable upon exercise of such Warrants be registered in the name of __________________________ whose address is ___________________________ and that such certificate be delivered to ________________ whose address is _________________________. All payments to be made in lieu of issuing a fractional share should be made by check payable to __________________________________ whose address is ______________________________________. The undersigned hereby irrevocably instructs the Warrant Agent (A) to deliver this Note to the Trustee pursuant to the provisions of the Indenture with instructions to issue in the name of the registered Holder a Note in principal amount equal to the principal amount of the Note evidenced by this Unit; (B) to issue in the name of the undersigned registered Holder a Warrant Certificate representing the number of Warrants equal to the difference between (x) the number of Warrants represented by this Unit and (y) the Warrants exercised hereby on behalf of the undersigned registered Holder; and (C) as custodian of the Warrants on behalf of such registered Holder, to cause such Warrants to be exercised on behalf of the undersigned Holder as provided in the Warrant Agreement. Dated: Name of Holder of this Note: -------------------------------------- Address: -------------------------------- Signature: ------------------------------ [Note: the above signature must correspond with the name as written upon the face of this Unit in every particular, without alteration or enlargement whatever.] B-9 106 ASSIGNMENT I or we assign this Unit to: -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee: -------------------------------------- and irrevocably appoint ____________________ agent to transfer this Unit on the books of the Company. The agent may substitute another to act for him. Dated: ---------- Signature: --------------------------------------------- (Sign exactly as name appears on the other side of this Unit) B-10 107 EXCHANGE I or we assign the Note evidenced by this Unit to: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East Suite 320 Houston, Texas 77032 I.R.S. Employer Identification No.: 76-0229632 and irrevocably appoint ____________________ agent to transfer the Note evidenced by this Unit on the books of the Company. The agent may substitute another to act for him. Dated: ---------- Signature: --------------------------------------------- (Sign exactly as name appears on the other side of this Unit) B-11 108 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have the Note evidenced by this Unit purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, check the appropriate box below: [ ] Section 4.14 [ ] Article XI If you want to elect to have only part of the Note evidenced by this Unit purchased by the Company pursuant to Section 4.14 or Article XI of the Indenture, as the case may be, state the amount you want to be purchased: $____________ Dated: ----------------- Signature: ----------------------------------- (Sign exactly as your name appears on the other side of this Unit) Your Social Security or Tax Identification Number: ---------------- Signature Guarantee***: ------------------------------------------- - --------------------------- ***NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agents Medallion Program (STAMP) (2) The New York Stock Exchange Medallion Signature Program (MSP) (3) The Stock Exchange Medallion Program (SEMP) B-12 109 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: [Series C] [Series D] 16% Senior Subordinated Notes due 2003 (the "Notes") of TransAmerican Refining Corporation This Certificate relates to $_______________ principal amount of Notes held in * [ ] book-entry or * [ ] definitive form by ________________________________________ (the "Transferor"). The Transferor, by written order, has requested the Trustee: [ ] to deliver in exchange for its beneficial interest in the Global Note held by the depository, a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or [ ] to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and, the transfer of this Note does not require registration under the Securities Act of 1933, as amended (the "Securities Act") because such Note: [ ] is being acquired for the Transferor's own account, without transfer; [ ] is being transferred pursuant to an effective registration statement; [ ] is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on such Rule 144A; [ ] is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act;** [ ] is being transferred pursuant to Rule 144 under the Securities Act;** or [ ] is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain: __________________________________).** --------------------------- [INSERT NAME OF TRANSFEROR] By: -------------------------------- Date: ------------------------ - ----------------------- * Check applicable box. ** If this box is checked, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. C-1 EX-4.28 11 WARRANT AGREEMENT DATED 3/16/98 1 EXHIBIT 4.28 WARRANT AGREEMENT Dated as of March 16, 1998 Between TRANSAMERICAN REFINING CORPORATION and FIRST UNION NATIONAL BANK as the Warrant Agent ---------------------------------- Warrants for Common Stock of TransAmerican Refining Corporation ---------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions...............................................................................2 SECTION 1.1 Definitions..................................................................2 SECTION 1.2 Rules of Construction........................................................5 ARTICLE II Warrant Certificates......................................................................5 SECTION 2.1 Form of Warrant Certificates.................................................5 SECTION 2.2 Legends......................................................................6 SECTION 2.3 Execution and Delivery of Warrant Certificates...............................7 SECTION 2.4 Loss or Mutilation...........................................................8 ARTICLE III Exercise Terms............................................................................9 SECTION 3.1 Exercise Price...............................................................9 SECTION 3.2 Exercise Period..............................................................9 SECTION 3.3 Expiration...................................................................9 SECTION 3.4 Manner of Exercise...........................................................9 SECTION 3.5 Issuance of Warrant Shares..................................................10 SECTION 3.6 Fractional Warrant Shares...................................................10 SECTION 3.7 Reservation of Warrant Shares...............................................10 SECTION 3.8 Cancellation of Warrant Certificates........................................11 SECTION 3.9 Compliance with Law.........................................................11 ARTICLE IV Antidilution Provisions..................................................................11 SECTION 4.1 Adjustment of Exercise Price and Warrant Number.............................11 SECTION 4.2 Adjustment for Change in Capital Stock......................................12 SECTION 4.3 Adjustment for Rights Issue.................................................12 SECTION 4.4 Adjustment for Other Distributions..........................................13 SECTION 4.5 Adjustment for Common Stock Issue...........................................14 SECTION 4.6 Adjustment for Convertible Securities Issue.................................15 SECTION 4.7 [INTENTIONALLY OMITTED.]....................................................16 SECTION 4.8 Consideration Received......................................................16 SECTION 4.9 When De Minimis Adjustment May Be Deferred..................................17
i 3
Page ---- SECTION 4.10 Adjustment to Exercise Price...............................................17 SECTION 4.11 When No Adjustment Required................................................18 SECTION 4.12 Notice of Adjustment.......................................................18 SECTION 4.13 Voluntary Reduction........................................................18 SECTION 4.14 Reorganizations............................................................18 SECTION 4.15 Form of Warrants...........................................................19 SECTION 4.16 Other Dilutive Events......................................................19 SECTION 4.17 Miscellaneous..............................................................19 SECTION 4.18 Non-applicability of Article IV............................................20 ARTICLE V Transferability..........................................................................20 SECTION 5.1 Transfer and Exchange.......................................................20 SECTION 5.2 Registration, Registration of Transfer and Exchange.........................21 SECTION 5.5 Surrender of Warrant Certificates...........................................24 ARTICLE VI Warrant Agent............................................................................25 SECTION 6.1 Appointment of Warrant Agent................................................25 SECTION 6.2 Rights and Duties of Warrant Agent..........................................25 SECTION 6.3 Individual Rights of Warrant Agent..........................................26 SECTION 6.4 Warrant Agent's Disclaimer..................................................26 SECTION 6.5 Compensation and Indemnity..................................................26 SECTION 6.6 Successor Warrant Agent.....................................................27 ARTICLE VII Miscellaneous............................................................................28 SECTION 7.1 [INTENTIONALLY OMITTED.]....................................................28 SECTION 7.2 SEC Reports and Other Information...........................................28 SECTION 7.3 Rule 144A...................................................................29 SECTION 7.4 Persons Benefitting.........................................................29 SECTION 7.5 Rights of Holders...........................................................29 SECTION 7.6 Amendment...................................................................29 SECTION 7.7 Notices.....................................................................30 SECTION 7.8 Governing Law...............................................................30 SECTION 7.9 Successors..................................................................31 SECTION 7.10 Multiple Originals.........................................................31
ii 4 SECTION 7.11 Table of Contents..........................................................31 SECTION 7.12 Severability...............................................................31 SECTION 7.13 Further Assurances.........................................................31
5 THIS WARRANT AGREEMENT (this "Agreement"), dated as of March 16, 1998, is between TRANSAMERICAN REFINING CORPORATION, a Texas corporation (together with its permitted successors and assigns, the "Company"), and FIRST UNION NATIONAL BANK, as warrant agent (together with its permitted successors and assigns, the "Warrant Agent"). WHEREAS, the Company has entered into a purchase agreement, dated March 6, 1998 (the "Purchase Agreement"), with Jefferies & Company, Inc. (the "Purchaser"), pursuant to which the Company has agreed to issue and sell to the Purchaser 25,000 Units (as defined below), consisting of (i) $25,000,000 aggregate principal amount of 16% Series C Senior Subordinated Notes due 2003 (the "Notes") and (ii) 25,000 warrants (the "Warrants" or "Unit Warrants") to purchase initially an aggregate of 333,606 shares (the "Warrant Shares") of the Company's common stock, $0.01 par value per share (the "Common Stock"), at an exercise price of $0.01 per share; WHEREAS, the Notes will be issued pursuant to an indenture (the "Indenture") to be dated as of March 16, 1998 between the Company and First Union National Bank, as trustee (the "Trustee"); WHEREAS, the Warrants are to be issued pursuant to this Agreement; WHEREAS, the Notes and the Warrants will be sold in Units, each Unit consisting of (i) one Note in the principal amount of $1,000 and (ii) one Warrant to purchase initially 13.344257 Warrant Shares at an exercise price of $0.01 per share (the "Units"); WHEREAS, prior to Separation (as defined below), record ownership of the Notes and beneficial ownership of the Unit Warrants will be evidenced by record ownership of the Units; WHEREAS, definitive certificates (the "Custodian Warrants") evidencing the Unit Warrants will be held by the Warrant Agent as custodian for the registered holders of the Units; WHEREAS, the Company further desires the Warrant Agent to act on behalf of the Company in connection with the issuances, division, transfer, exchange, substitution and exercise of the Warrants, and the Warrant Agent is willing to so act; and NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Warrants (or until Separation (as defined below), the registered holders of Units) (each a "Holder"): 2 6 ARTICLE I Definitions SECTION 1.1 Definitions. Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified Person means (i) any other Person which, directly or indirectly, is controlling or controlled by or under direct or indirect common control with such specified Person, or (ii) any other Person who is a director or executive officer (A) of such Person, (B) of any subsidiary of such specified Person, or (C) of any Person described in clause (i) above. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Affiliate shall also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Agent Member" has the meaning given to such term in Section 5.3. "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means any day other than (i) Saturday or Sunday, (ii) or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Common Stock" has the meaning given to such term in the recitals to this Agreement. "Company" has the meaning given to such term in the preamble to this Agreement. "Current Market Value" per share of Common Stock or any other security at any date means, on any date of determination (a) the average of the daily closing sale prices for each of 15 trading days immediately preceding such date (or such shorter number of days during which such security has been listed or traded), if the security has been listed on the New York Stock Exchange, the American Stock Exchange or other national securities exchange or the NASDAQ National Market for at least 10 trading days prior to such 3 7 date, (b) if such security is not so listed or traded, the average of the daily closing bid prices for each of the 15 trading days immediately preceding such date (or such shorter number of days during which such security had been quoted), if the security has been quoted on a national over-the-counter market for at least 10 trading days, and (c) otherwise, the value of the security most recently determined as of a date within the six months preceding such day by the Board. "Definitive Warrants" has the meaning given to such term in Section 2.1. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC pursuant thereto. "Exercise Date" has the meaning given to such term in Section 3.2. "Exercise Price" has the meaning given to such term in Section 3.1. "Expiration Date" has the meaning given to such term in Section 3.2. "Global Warrant" has the meaning given to such term in Section 2.1. "Global Warrants" has the meaning given to such term in Section 2.1. "Holders" has the meaning given to such term in the recitals to this Agreement. "Indenture" has the meaning given to such term in the recitals to this Agreement. "Institutional Accredited Investor" has the meaning given to such term in Section 2.3. "Issue Date" means the date on which Warrants are initially issued, which is March 16, 1998. "Notes" has the meaning given to such term in the recitals to this Agreement. "Offering Circular" means the final Offering Circular of the Company dated March 6, 1998 relating to the issuance and sale of the Units. 4 8 "Officer" means the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President or the Treasurer of the Company. "Old Warrants" means the common stock purchase warrants of the Company issued pursuant to the warrant agreement, dated as of February 23, 1995, between the Company and First Union National Bank, or successor warrant agent, as amended. "Person" means any individual, corporation, company (including any limited liability company), partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redeemable Stock" means, with respect to any Person, any capital stock that by its terms (or by the terms of any security into which it is convertible or exchangeable) or otherwise (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchasable at the option of the holder thereof, in whole or in part, or (iii) is convertible or exchangeable for indebtedness. "Restricted Definitive Warrant" has the meaning given to such term in Section 2.3. "Restricted Warrant" means a Global Warrant or a Restricted Definitive Warrant. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series A Warrants" means the warrants issued on December 30, 1997 pursuant to the warrant agreement, dated December 30, 1997 between the Company and First Union National Bank. "Stock Transfer Agent" has the meaning given to such term in Section 3.5. "Voting Stock" means all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Warrant Agent" has the meaning given to such term in the Recitals. 5 9 "Warrant Certificates" has the meaning given to such term in Section 2.1. "Warrant Number" has the meaning given to such term in Article IV. "Warrant Shares" means the Common Stock (and other securities) issuable upon the exercise of the Warrants. "Warrants" has the meaning given to such term in the Recitals. SECTION 1.2 Rules of Construction. Unless the text otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including, without limitation; (v) references to "Section" and "Article" refer to Sections and Articles of this Agreement, unless the context clearly requires otherwise; and (vi) words in the singular include the plural and words in the plural include the singular. ARTICLE II Warrant Certificates SECTION 2.1 Form of Warrant Certificates. Prior to Separation, beneficial ownership of the Unit Warrants will be evidenced by record ownership of the Units. From and after Separation, the Unit Warrants will be issued (a) in global form (the "Global Warrant"), substantially in the form of Exhibit A attached hereto (including the text accompanying the footnotes thereto), and (b) in definitive form (the "Definitive Warrants"), substantially in the form of Exhibit A (excluding the text accompanying the footnotes thereto). The Global Warrant shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon; provided that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Warrant to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Warrant Agent in accordance with instructions given by the holder thereof. The Depository with respect to the Global Warrant (the "Depository") shall be The Depository Trust Company until a successor shall be appointed by the Company and become such Depository. The Global Warrant shall be registered in the name of the Depository, or the nominee of such Depository. So long as the Depository or its nominee is the registered owner of such Global Warrant it will be deemed the sole owner and holder of such Global Warrant for all purposes hereunder and under such Global Warrant. The certificates (the "Warrant Certificates") evidencing the Global Warrant and the Definitive 6 10 Warrants to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit A attached hereto. Neither the Company nor the Warrant Agent will have any responsibility or liability for any aspects of the records relating to beneficial ownership interest of the Global Warrant in the name of the Depository or its nominee or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.2 Legends. Unless and until a Warrant or Warrant Share is sold under an effective registration statement, each Warrant Certificate evidencing the Global Warrants and the Definitive Warrants (and all Warrant Certificates issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares shall bear a legend in substantially the following form (with any appropriate modification for the Warrant Shares): THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH TRANSAMERICAN REFINING CORPORATION ("THE COMPANY") OR ANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN 7 11 INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. SECTION 2.3 Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase initially an aggregate of up to 333,606 Warrant Shares may be executed, on or after the Issue Date, by the Company and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates upon the order and at the direction of the Company to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by this Agreement. The Warrant Certificates shall be executed on behalf of the Company by an Officer of the Company either manually or by facsimile signature printed thereon. The Warrant Certificates shall be countersigned manually by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any Officer of the Company whose signature shall have been placed upon any of the Warrant Certificates shall cease to be such Officer of the Company before countersignature by the Warrant Agent and issuance and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such Officer of the Company. Subject to Section 2.5, Warrants offered and sold in their initial distribution to a limited number of institutions that are accredited investors (which are not QIBs) within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and institutions in which all the equity owners are such accredited investors) (together referred to as "Institutional Accredited Investors") in transactions exempt from registration under the Securities Act will be delivered, after separation, in certificated fully registered form (a "Restricted Definitive Warrant") substantially in the form set forth in Exhibit A. Such Warrants shall be delivered to such Institutional Accredited Investors only upon the execution and delivery to the Company and the Purchaser of an institutional accredited investor transferee compliance letter (an "Investor Letter") substantially in the form of Annex A to the Offering Circular. Restricted Definitive Warrants may not be transferred or exchanged for interests in the Global Warrant or another Restricted Definitive Warrant, except as provided herein. 8 12 SECTION 2.4 Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity satisfactory to them and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and the Warrant Agent shall countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Section 2.4, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the reasonable fees and expenses of the Warrant Agent and of counsel to the Company) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 2.4 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable under applicable law, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.4 are exclusive and shall preclude (to the extent lawful) all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary, with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. Section 2.5. Transfers of Notes and Warrants Prior to Separation; Separation. The Custodian Warrants will be held by the Warrant Agent, as custodian for the holders of the Units, until such time as the registered holder of a Unit shall have surrendered such Unit to the Warrant Agent for the exchange of such Unit, in whole or in part, for a Definitive Warrant or Warrants and for a Note or Notes of a like aggregate principal amount of authorized denominations (such surrender and exchange, together with the exchange for the Global Warrant referred to below, are herein referred to as a "Separation" and the related Warrants are referred to as being "Separated"); provided, that Separation may not occur until the earlier of (i) December 30, 1998, (ii) commencement of the Exchange Offer (as defined in the Registration Rights Agreement, dated the date hereof, between the Company and the Purchaser) and (iii) such other date as may be determined by the Purchaser. Each Unit presented for Separation shall be duly endorsed by the registered holder thereof or by the duly appointed legal representative thereof or by a duly authorized attorney-in-fact. The Warrant Agent shall deliver such Unit to the Trustee pursuant to the provisions of the Indenture, with instructions to issue Notes in authorized denominations for an aggregate principal amount equal to the aggregate principal amount of the Notes surrendered in the name of each registered holder or holders. The Warrant Agent, as custodian, shall deliver (or cause to be delivered) the Notes so received from the Trustee and a Warrant Certificate or Certificates executed by the Company and countersigned by the Warrant Agent in the name of such 9 13 registered holder or holders for such aggregate number of Warrants as shall equal Warrants so exchanged for Separation, in each case, bearing numbers or other distinguishing symbols not contemporaneously outstanding to the holder or holders entitled thereto. ARTICLE VI Exercise Terms SECTION 3.1 Exercise Price. Each Warrant shall initially entitle the Holder thereof, subject to adjustment pursuant to the terms of this Agreement, to purchase 13.344257 shares of Common Stock for an exercise price of $0.01 per share of Common Stock (the "Exercise Price"). The Warrant Number and Exercise Price are both subject to adjustment as set forth in Article IV. SECTION 3.2 Exercise Period. (a) Subject to the terms and conditions set forth herein, the Warrants shall only be exercisable at any time or from time to time on any Business Day on or after December 30, 1998 (the "Exercise Date"). (b) No Warrant shall be exercisable after June 30, 2003 (the "Expiration Date"). SECTION 3.3 Expiration. A Warrant shall terminate and become void as of the earlier of (i) the close of business on the Expiration Date or (ii) the date such Warrant is exercised. The Company shall give notice not less than 90, and not more than 120, days prior to the Expiration Date to the Holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of the close of business on the Expiration Date; provided, however, that notwithstanding that the Company may fail to give notice as provided in this Section 3.3, the Warrants will terminate and become void on the Expiration Date. SECTION 3.4 Manner of Exercise. Warrants may be exercised at any time on or after the Exercise Date by surrendering to the Warrant Agent the Warrant Certificates at any office or agency maintained for that purpose, together with the form of election to purchase Common Stock on the reverse thereof duly completed and signed by the Holder thereof and paying in full the Exercise Price for each Warrant exercised and any other amounts required to be paid pursuant to Section 5.2 hereof. Payment of the Exercise Price (and any other required amounts) shall be made in the form of cash or a certified or official bank check payable to the order of the Company. Subject to Section 3.2, the rights represented by the Warrants shall be exercisable at the election of the Holders thereof either in full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise in respect of less than all the Warrant Shares purchasable on such exercise at any time prior to the expiration of the Exercise Period a new Warrant Certificate 10 14 exercisable for the remaining Warrant Shares will be issued. The Warrant Agent shall countersign and deliver the required new Warrant Certificates, and the Company, at the Warrant Agent's request, shall supply the Warrant Agent with Warrant Certificates duly signed on behalf of the Company for such purpose. SECTION 3.5 Issuance of Warrant Shares. Upon the surrender of Warrant Certificates, as set forth in Section 3.4, the Company shall issue and cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Stock Transfer Agent") to countersign and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise, to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price, as aforesaid. SECTION 3.6 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.6, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the same fraction of the Current Market Value for one share of Common Stock less the portion of the Exercise Price attributable thereto, rounded to the nearest whole cent. SECTION 3.7 Reservation of Warrant Shares. The Company shall at all times keep reserved out of its authorized shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall at all times until the expiration of the Exercise Period reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Stock Transfer Agent. The Company will supply such Stock Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.6. The Company will furnish to such Stock Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each Holder. The Company covenants that all shares of Common Stock that may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of 11 15 preemptive rights, free from all taxes and free from all liens, charges and security interests, created by or through the Company, with respect to the issue thereof. SECTION 3.8 Cancellation of Warrant Certificates. In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if so delivered, shall be canceled by it and retired. The Warrant Agent shall cancel all Warrant Certificates properly surrendered for exchange, substitution, transfer or exercise. The Warrant Agent shall destroy canceled Warrant Certificates held by it and deliver a certificate of destruction to the Company. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all monies received by the Warrant Agent for the purchase of Warrant Shares through the exercise of such Warrants. SECTION 3.9 Compliance with Law. (a) Notwithstanding anything in this Agreement to the contrary, in no event shall a Holder be entitled to exercise a Warrant, unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective or (ii) in the opinion of counsel addressed to the Warrant Agent an exemption from the registration requirements is available under the Securities Act for the issuance of the Warrant Shares (and the delivery of any other securities for which the Warrants may at the time be exercisable) at the time of such exercise. (b) If any shares of Common Stock required to be reserved for purposes of exercise of Warrants require, under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will in good faith and as expeditiously as possible endeavor also to cause such shares to be duly registered or approved by such governmental authority or listed on the relevant national securities exchange, as the case may be. ARTICLE VIII Antidilution Provisions SECTION 4.1 Adjustment of Exercise Price and Warrant Number. The number of shares of Common Stock issuable upon the exercise of each Warrant (the "Warrant Number") is initially 13.344257. The Warrant Number is subject to adjustment from time to time upon the occurrence of the events enumerated in, or as otherwise provided in, this Article IV . 12 16 SECTION 4.2 Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (3) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock (other than reclassifications arising solely as a result of a change in the par value or no par value of the Common Stock); then the Warrant Number in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which it would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If the occurrence of any event listed above results in an adjustment under Section 4.3 or 4.4 below, no further adjustment shall be made under this Section 4.2. The Company shall not issue shares of Common Stock as a dividend or distribution on any class of capital stock other than Common Stock unless (i) such dividend or distribution is not prohibited by the Indenture and (ii) the Warrant Holders also receive such dividend or distribution on a ratable basis or the appropriate adjustment to the Warrant Number is made under this Article IV. 13 17 SECTION 4.3 Adjustment for Rights Issue. If the Company distributes (and receives no consideration therefor) any rights, options or warrants (whether or not immediately exercisable) to holders of any class of its Common Stock entitling them to purchase shares of Common Stock at a price per share less than the Current Market Value per share on the record date relating to such distribution, the Warrant Number shall be adjusted in accordance with the formula: W(') = W x O + N --------- O + N x P ----- M where: W(') = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date for any such distribution. O = the number of shares of Common Stock outstanding on the record date for any such distribution. N = the number of additional shares of Common Stock issuable upon exercise of such rights, options or warrants. P = the exercise price per share of such rights, options or warrants. M = the Current Market Value per share of Common Stock on the record date for any such distribution. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. SECTION 4.4 Adjustment for Other Distributions. If the Company distributes to holders of any class of its Common Stock (as such) (i) any evidences of indebtedness of the Company or any of its subsidiaries, (ii) any assets of the Company or any of its subsidiaries, or (iii) any rights, options or warrants to acquire any of 14 18 the foregoing or to acquire any other securities of the Company, the Warrant Number shall be adjusted in accordance with the formula: W' = W x M ------ M - F where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date mentioned below. M = the Current Market Value per share of Common Stock on the record date mentioned below. F = the fair market value on the record date mentioned below of the shares, indebtedness, assets, rights, options or warrants distributable to the holder of one share of Common Stock. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted as if "F" in the above formula was the fair market value on the record date of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the record date. In the event that "F" in the above formula is greater than or equal to "M" in the above formula, then each Holder of the Warrants, notwithstanding that such Holder's Warrants have not been exercised, shall receive the distribution referred to in this Section 4.4 on the basis of number of Warrant Shares underlying the Warrants held by each such Holder. This subsection does not apply to rights, options or warrants referred to in Section 4.3. SECTION 4.5 Adjustment for Common Stock Issue. If the Company issues shares of Common Stock for a consideration per share less than the Current Market Value per share on the date the Company fixes the offering price of such additional shares, the Warrant Number shall be adjusted in accordance with the formula: 15 19 W' = W x A ----- O + P --- M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock. P = the aggregate consideration received for the issuance of such additional shares of Common Stock. M = the Current Market Value per share of Common Stock on the date of issuance of such additional shares. A = the number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This Section 4.5 does not apply to any of the transactions described in Section 4.2 or to the issuance of Common Stock upon exercise of the Old Warrants. SECTION 4.6 Adjustment for Convertible Securities Issue. If the Company issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than securities issued in transactions described in Sections 4.3 or 4.4) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities less than the Current Market Value per share on the date of issuance of such securities, the Warrant Number shall be adjusted in accordance with this formula: W' = W x O + D ----- O + P --- M where: 16 20 W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. P = the sum of the aggregate consideration received for the issuance of such securities and the aggregate minimum consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities. M = the Current Market Value per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares of Common Stock deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when the conversion, exchange or exercise rights of such securities have expired or been terminated, then the adjusted Warrant Number shall promptly be readjusted to the adjusted Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. If the aggregate minimum consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities shall be increased by virtue of provisions therein contained or upon the arrival of a specified date or the happening of a specified event, then the Warrant Number shall promptly be readjusted to the Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of such increased minimum consideration. This Section 4.6 does not apply to the issuance of the Warrants or to any of the transactions described in Section 4.3. 17 21 SECTION 4.7 [INTENTIONALLY OMITTED.] SECTION 4.8 Consideration Received. For purposes of any computation respecting consideration received pursuant to Sections 4.4, 4.5 and 4.6, the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash (without any deduction being made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith); (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof (irrespective of the accounting treatment thereof) as determined in good faith by the Board; and (3) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion, exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subsection). SECTION 4.9 When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant Number need be made unless the adjustment would require an increase or decrease of at least 0.5% in the Warrant Number. Any adjustment that is not made shall be carried forward and taken into account in any subsequent adjustment, provided that no such adjustment shall be deferred beyond the date on which a Warrant is exercised. All calculations under this Article IV shall be made to the nearest 1/100th of a share. SECTION 4.10 Adjustment to Exercise Price. Upon each adjustment to the Warrant Number pursuant to this Article IV, the Exercise Price shall be adjusted so that it is equal to the Exercise Price in effect immediately prior to such adjustment multiplied by a quotient, the numerator of which is the Warrant Number in effect immediately prior to such adjustment, and the denominator of which is the Warrant Number 18 22 in effect immediately after such adjustment; provided, that the Exercise Price shall not be adjusted below the lesser of $0.01 per share of Common Stock and the then par value per share of Common Stock. SECTION 4.11 When No Adjustment Required. If an adjustment is made upon the establishment of a record date for a distribution subject to Sections 4.2, 4.3 or 4.4 hereof and such distribution is subsequently cancelled, the Warrant Number and Exercise Price then in effect shall be readjusted, effective as of the date when the Board determines to cancel such distribution, to that which would have been in effect if such record date had not been fixed. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the amount of cash into which such Warrants are exercisable. Interest will not accrue on the cash. SECTION 4.12 Notice of Adjustment. Whenever the Warrant Number or Exercise Price is adjusted, The Company shall provide the notices required by Section 7.7 hereof. SECTION 4.13 Voluntary Reduction. The Company from time to time may reduce the Exercise Price by any amount for any period of time (including, without limitation, permanently) if the period is at least 20 days and if the reduction is irrevocable during the period. Whenever the Exercise Price is reduced, the Company shall mail to the Holders a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced Exercise Price takes effect. The notice shall state the reduced Exercise Price and the period it will be in effect. A reduction of the Exercise Price under this Section 4.13 (other than a permanent reduction) does not change or adjust the Exercise Price otherwise in effect for purposes of Sections 4.2, 4.3, 4.4, 4.5 or 4.6. SECTION 4.14 Reorganizations. In case of any capital reorganization, other than in the cases referred to in Sections 4.2, 4.3, 4.4, 4.5 or 4.6 hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock into shares of other stock or other securities or property), or the sale of the property of the 19 23 Company as an entirety or substantially as an entirety (collectively, such actions being hereinafter referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the amount of cash, the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of the Company, whose determination shall be described in a duly adopted resolution certified by The Company's Secretary or Assistant Secretary, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization or the corporation purchasing or leasing such assets or other appropriate corporation or entity shall expressly assume, by a supplemental Warrant Agreement or other acknowledgment executed and delivered to the Holder(s), the obligation to deliver to each such Holder such cash, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and all other obligations and liabilities under this Agreement. SECTION 4.15 Form of Warrants. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. SECTION 4.16 Other Dilutive Events. In case any event shall occur as to which the provisions of this Article IV are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of such sections, then, in each such case, the Company shall make a good faith adjustment to the Exercise Price and Warrant Number into which each Warrant is exercisable in accordance with the intent of this Article IV and, upon the written request of the holders of a majority of the Warrants, shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Article IV, necessary to preserve, without dilution, the purchase rights represented by these Warrants. Upon 20 24 receipt of such opinion, the Company shall promptly mail a copy thereof to the Holder of each Warrant and shall make the adjustments described therein. SECTION 4.17 Miscellaneous. For purpose of this Article IV the term "shares of Common Stock" shall mean (i) shares of any class of stock designated as Common Stock of the Company as of the date of this Agreement, (ii) shares of any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value and (iii) shares of Common Stock of the Company issuable upon exercise of options, warrants or rights to purchase Common Stock of the Company or upon conversion or exchange of securities convertible into or exchangeable for shares of Common Stock of the Company outstanding at the date of determination. In the event that at any time, as a result of an adjustment made pursuant to this Article IV, the holders of Warrants shall become entitled to purchase any securities of The Company other than, or in addition to, shares of Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in Sections 4.2 through 4.16 of this Article IV, inclusive, and the provisions of this Agreement with respect to the Warrant Shares or the Common Stock shall apply on like terms to any such other securities. SECTION 4.18 Non-applicability of Article IV. The provisions of this Article IV do not apply to (i) a change solely in the par value or no par value of the Common Stock, provided that the Company shall not increase the par value to exceed the Exercise Price, (ii) the conversion or exchange (other than pursuant to a reclassification), in any case on a share-for-share basis, of Common Stock for non-voting common stock that has rights (other than voting rights) identical to the Common Stock, or of such non-voting stock for Common Stock, (iii) the issuance to employees of Transamerican Energy Corporation or any of its subsidiaries of stock or stock options in an amount which, upon purchase or exercise, as the case may be, would represent in the aggregate, less than 10% of the Company's Common Stock on a fully-diluted basis, (iv) any distribution by the Company of Capital Stock of TransTexas Gas Corporation to a holder or holders of Common Stock, or (v) any exercise of Warrants or the Series A Warrants. ARTICLE X Transferability SECTION 5.1 Transfer and Exchange. The Company shall cause to be kept at the office of the Warrant Agent a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrant Certificates and transfers 21 25 or exchanges of Warrant Certificates as herein provided. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefit under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. A Holder may transfer its Warrants only by complying with the terms of this Agreement. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the register. Prior to the registration of any transfer of Warrants by a Holder as provided herein, the Company, the Warrant Agent, any agent of the Company or the Warrant Agent may treat the Person in whose name the Warrants are registered as the owner thereof for all purposes and as the Person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of a Global Warrant shall, by acceptance of such Global Warrant, agree that transfers of beneficial interests in such Global Warrant may be effected only through a book-entry system maintained by the Holder of such Global Warrant (or its agent), and that ownership of a beneficial interest in the Warrants represented thereby shall be required to be reflected in a book entry. When Warrant Certificates are presented to the Warrant Agent with a request to register the transfer or to exchange them for an equal amount of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange in accordance with the provisions hereof. To permit registrations of transfer and exchanges, the Company shall make available to the Warrant Agent a sufficient number of executed Warrant Certificates to effect such registrations of transfers and exchanges. No service charge shall be made to the Holder for any registration of transfer or exchange of Warrants, but the Company may require from the transferring or exchanging Holder payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.4 and exchanges in respect of portions of Warrants not exercised and the Company may deduct such taxes from any payment of money to be made and such transfer or exchange shall not be consummated (if such taxes are not deducted in full) unless or until the Holder shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. SECTION 5.2 Registration, Registration of Transfer and Exchange. (a) Transfer and Exchange of Definitive Warrants. When Definitive Warrants are presented to the Warrant Agent with a request (i) to register the transfer of the Definitive Warrant or (ii) to exchange such Definitive Warrants for an equal number of Definitive Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Definitive Warrants so presented have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Warrant Agent, duly executed by the holder thereof or by his attorney, duly authorized in writing; 22 26 (b) Transfer of a Definitive Warrant for a Beneficial Interest in Global Warrant. A Definitive Warrant may be exchanged for a beneficial interest in the Global Warrant only upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with written instructions directing the Warrant Agent to make an endorsement on the Global Warrant to reflect an increase in the number of Warrants and Warrant Shares represented by the Global Warrant, and then the Warrant Agent shall cancel such Definitive Warrant and cause the number of Warrants and Warrant Shares represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall countersign a new Global Warrant representing the appropriate number of Warrants and Warrant Shares. (c) Transfer and Exchange of Global Warrant. The transfer and exchange of the Global Warrant or beneficial interests therein shall be effected through the Depository, in accordance with this Warrant Agreement and the procedures of the Depository therefor. Notwithstanding any other provisions of this Warrant Agreement, the Global Warrant may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository: provided, that if: (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Warrant and a successor Depository for the Global Warrant is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants under this Warrant Agreement. then the Company shall execute and the Warrant Agent shall countersign and deliver, Definitive Warrants in an aggregate number equal to the number of Warrants evidenced by the Global Warrant, in exchange for such Global Warrant. (d) Transfer of a Beneficial Interest in Global Warrant for a Definitive Warrant. Upon receipt by the Warrant Agent of written transfer instructions (or such other form of instructions as is customary for the Depository) from the Depository (or its nominee) on behalf of any person having a beneficial interest in the Global Warrant, the Warrant Agent shall cause, in accordance with the standing instructions and procedures existing between the Depository and the Warrant Agent (the "Standing Instructions"), the number of Warrants and Warrant Shares represented by the Global Warrant to be reduced and, following such reduction, the Company shall execute and the Warrant Agent shall countersign and deliver to the transferee, as the case may be, a Definitive Warrant. Definitive Warrants issued in exchange for a beneficial interest in the Global Warrant shall be registered in such names and in such authorized denominations as the Depository shall instruct the Warrant Agent. 23 27 (e) Cancellation and/or Adjustment of Global Warrant. At such time as all beneficial interests in the Global Warrant have either been exchanged for Definitive Warrants, exercised or cancelled, the Global Warrant shall be returned to or retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in the Global Warrant is exchanged for Definitive Warrants, exercised or cancelled, the number of Warrants and Warrant Shares represented by such Global Warrant shall be reduced and an endorsement shall be made on such Global Warrant by the Warrant Agent to reflect such reduction. SECTION 5.3 [INTENTIONALLY OMITTED]. SECTION 5.4 Special Transfer Provisions. The following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants to any Institutional Accredited Investor that is not a QIB (excluding Non-U.S. Persons): (i) The Warrant Agent shall register the transfer of any Warrant Certificate, if (x)(A) the requested transfer is at least two years after the Issue Date or (B) the proposed transferee has delivered to the Warrant Agent certificates substantially in the forms of Exhibit B hereto and (y) if requested by the Warrant Agent or the Company, the proposed transferee has delivered to the Warrant Agent or the Company, an opinion of counsel acceptable to the Warrant Agent or the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the Global Warrant, upon receipt by the Warrant Agent of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with DTC's and the Warrant Agent's procedures, the Warrant Agent shall reflect on its books and records the date and a decrease in the number of Warrants represented by the Global Warrant in an amount equal to the number of Warrants represented by the Global Warrant to be transferred, and the Company shall execute, and the Warrant Agent shall countersign and deliver, one or more Restricted Definitive Warrants of like tenor and amount. (b) Transfers to QIBs. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants to a QIB: (i) If the Warrants to be transferred are represented by (x) Restricted Definitive Warrants, the Warrant Agent shall register the transfer if it has received from such transferor a certificate substantially in the form of Exhibit B hereto that the sale has 24 28 been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Warrant Certificate stating, or has otherwise advised the Company and the Warrant Agent in writing, that it is purchasing the Warrants for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the Global Warrant, the transfer of such interest may be effected only through the book-entry system maintained by DTC. (ii) If the proposed transferee is an Agent Member, and the Warrants to be transferred are represented by Restricted Definitive Warrants, upon receipt by the Warrant Agent of the documents referred to in clause (i) above and instructions given in accordance with DTC's and the Warrant Agent's procedures, the Warrant Agent shall reflect on its books and records the date and an increase in the number of Warrants represented by the Global Warrant in an amount equal to the number of Warrants represented by the Restricted Definitive Warrants, and the Warrant Agent shall cancel the Restricted Definitive Warrant. (c) General. By its acceptance of any Warrants represented by a Warrant Certificate bearing the legend in Section 2.2, each Holder of such Warrants acknowledges the restrictions on transfer of such Warrants set forth in this Agreement and in the legend and agrees that it will transfer such Warrants only as provided in this Agreement. The Warrant Agent shall not register a transfer of any Warrants unless such transfer complies with the requirements of this Section 5.4. In connection with any transfer of Warrants, each Holder agrees by its acceptance of Warrants to furnish the Warrant Agent or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided, however, that the Warrant Agent shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Warrant Agent's only obligation to enforce the transfer restrictions of this Agreement shall be to require the certifications and opinions specifically required by this Section 5.4 as a condition to a transfer. (d) Records. The Warrant Agent shall retain copies of all letters, notices and other written communications received pursuant to Section 5.3 hereof or this Section 5.4. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Warrant Agent. SECTION 5.5 Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange, exercise or repurchase of the Warrants 25 29 represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent and shall not be reissued by the Company and, except as provided in this Article V in case of an exchange or in Article III hereof in case of the exercise or repurchase of less than all the Warrants represented thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such canceled Warrant Certificates as the Company may direct in writing. ARTICLE VII Warrant Agent SECTION 6.1 Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with provisions of this Agreement and the Warrant Agent hereby accepts such appointment. SECTION 6.2 Rights and Duties of Warrant Agent. (a) Agent for the Company. In acting under this Warrant Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship or agency or trust for or with any of the holders of Warrant Certificates or beneficial owners of Warrants. (b) Counsel. The Warrant Agent may consult with counsel satisfactory to it, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel. (c) Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (d) No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder which may tend to involve it in any expense or liability for which it does not receive indemnity if such indemnity is reasonably requested. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates countersigned by the Warrant Agent and delivered by it to the Holders or on behalf of the Holders 26 30 pursuant to this Agreement or for the application by the Company of the proceeds of the Warrants. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the receipt of any written demand from a Holder with respect to such default, including any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise. (e) Not Responsible for Adjustments or Validity of Stock. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require an adjustment of the Warrant Number or the Exercise Price, or with respect to the nature or extent of any adjustment when made, or with respect to the method employed, or herein or in any supplemental agreement provided to be employed, in making the same. The Warrant Agent shall not be accountable with respect to the validity or value of any shares of Common Stock or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or upon any adjustment pursuant to Article IV, and it makes no representation with respect thereto. The Warrant Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates upon the surrender of any Warrant Certificate for the purpose of exercise or upon any adjustment pursuant to Article IV, or to comply with any of the covenants of the Company contained in Article IV. SECTION 6.3 Individual Rights of Warrant Agent. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or its affiliates or become pecuniarily interested in transactions in which the Company or its affiliates may be interested, or contract with or lend money to the Company or its affiliates or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 6.4 Warrant Agent's Disclaimer. The Warrant Agent shall not be responsible for and makes no representation as to the validity or adequacy of this Agreement or the Warrant Certificates and it shall not be responsible for any statement in this Agreement or the Warrant Certificates other than its countersignature thereon. SECTION 6.5 Compensation and Indemnity. The Company agrees to pay the Warrant Agent from time to time reasonable compensation for its services and to reimburse the Warrant Agent upon request for all reasonable out-of-pocket expenses incurred by it, including the reasonable compensation and expenses of the Warrant Agent's agents and counsel, in connection with the services rendered hereunder. The Company shall indemnify the Warrant Agent against any loss, liability or expense (including reasonable agents' and attorneys' fees and expenses) incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or performance of its duties under this Agreement. The Warrant Agent shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not 27 31 reimburse any expense or indemnify against any loss or liability incurred by the Warrant Agent through willful misconduct, negligence or bad faith. The Company's payment obligations pursuant to this Section 6.5 shall survive the termination of this Agreement. To secure the Company's payment obligations under this Agreement, the Warrant Agent shall have a lien prior to the Warrant Holders on all money or property held or collected by the Warrant Agent. SECTION 6.6 Successor Warrant Agent. (a) The Company To Provide Warrant Agent. The Company agrees for the benefit of the Holders that there shall at all times be a Warrant Agent hereunder until all the Warrants have been exercised or are no longer exercisable. (b) Resignation and Removal. The Warrant Agent may at any time resign by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall not be less than 60 days after the date on which such notice is given unless the Company otherwise agrees. The Warrant Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed by or on behalf of the Company and specifying such removal and the date when it shall become effective, which date shall not be less than 60 days after such notice is given unless the Warrant Agent otherwise agrees. Any removal under this Section 6.6 shall take effect upon the appointment by the Company as hereinafter provided of a successor Warrant Agent (which shall be a bank or trust company authorized under the laws of the jurisdiction of its organization to exercise corporate trust powers) and the acceptance of such appointment by such successor Warrant Agent. (c) The Company To Appoint Successor. In case at any time the Warrant Agent shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or shall commence a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Warrant Agent or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Warrant Agent in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law; or a decree order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant Agent or of its property or affairs, or any public officer shall take charge or control of the Warrant Agent or of its property or affairs for the purpose of rehabilitation, conservation, winding up of or liquidation, a successor Warrant Agent, 28 32 qualified as aforesaid, shall be appointed by the Company by an instrument in writing, filed with the successor Warrant Agent (or, in the absence of such appointment within 60 days after the notice of resignation or removal, either party hereto may petition the appointment of a successor by a court of competent jurisdiction.) Upon the appointment as aforesaid of a successor Warrant Agent and acceptance by the successor Warrant Agent of such appointment, the Warrant Agent shall cease to be Warrant Agent hereunder; provided, however, that in the event of the resignation of the Warrant Agent under this subsection (c), such resignation shall be effective on the earlier of (i) the date specified in the Warrant Agent's notice of resignation and (ii) the appointment and acceptance of a successor Warrant Agent hereunder. As soon as practicable after appointment of the successor Warrant Agent, the Company shall cause written notice of the change in the Warrant Agent to be given to each of the registered holders of the Warrants in the manner provided for in Section 7.7 hereof. However, failure to give any notice provided for in this clause (c) or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. (d) Successor Expressly To Assume Duties. Any successor Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of such predecessor with like effect as if originally named as Warrant Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor Warrant Agent shall be entitled to receive, all monies, securities and other property on deposit with or held by such predecessor, as Warrant Agent hereunder. (e) Successor by Merger. Any corporation into which the Warrant Agent hereunder may be merged or consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation to which the Warrant Agent shall sell or otherwise transfer all or substantially all of its corporate trust business; provided that it shall be qualified as aforesaid, shall be the successor Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. 29 33 ARTICLE VIII Miscellaneous SECTION 7.1 [INTENTIONALLY OMITTED.] SECTION 7.2 SEC Reports and Other Information. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall, for all periods ending after the date of this Warrant Agreement, file with the SEC and thereupon provide the Warrant Agent and Holders with such annual reports and such information, documents and other reports are as specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed at the times specified for the filing of such information, documents and reports under such Sections, and within 5 Business Days thereafter such information, documents and other reports shall be provided to the Warrant Agent and the Holders. SECTION 7.3 Rule 144A. The Company hereby agrees with each Holder, for so long as any Warrants or Warrant Shares remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to any Holder or beneficial owner of Warrants or Warrant Shares in connection with any sale thereof and any prospective purchaser of such Warrants or Warrant Shares from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Warrants or Warrant Shares pursuant to Rule 144A. SECTION 7.4 Persons Benefitting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the Company, the Warrant Agent and the Holders any right, remedy or claim under or by reason of this agreement or any part hereof. SECTION 7.5 Rights of Holders. Except as expressly contemplated herein, holders of unexercised Warrants are not entitled (i) to receive dividends or other distributions, (ii) to receive notice of or vote at any meeting of the stockholders, (iii) to consent to any action of the stockholders, (iv) to exercise any preemptive right or to receive notice of any other proceedings of the Company or (v) to exercise any other rights whatsoever as stockholders of the Company. SECTION 7.6 Amendment. This Agreement may be amended by the parties hereto without the consent of any Holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or making any other provisions with respect to matters or questions arising under this Agreement as the Company and the Warrant Agent may deem necessary or desirable; provided however, that the Company determines, and the Warrant Agent may rely on such determination, that such action shall not affect adversely the rights of the Holders. Any amendment or supplement to this Agreement that has a material adverse effect on the interests of the Holders shall require the written consent of the 30 34 Holders of a majority of the then outstanding Warrants. The consent of each Holder affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided in Article IV as of the Issue Date of the Warrants). In determining whether the Holders of the required number of Warrants have concurred in any direction, waiver or consent, Warrants owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Warrant Agent shall be protected in relying on any such direction, waiver or consent, only Warrants which the Warrant Agent knows are so owned shall be so disregarded. Also, subject to the foregoing, only Warrants outstanding at the time shall be considered in any such determination. SECTION 7.7 Notices. Any notice or communication shall be in writing and delivered in Person or mailed by first-class mail addressed as follows: if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East Suite 320 Houston, Texas 77032-2949 Attention: Ed Donahue Vice President with a copy to: Gardere & Wynne, L.L.P. 3000 Thanksgiving Tower Dallas, Texas 75201 Attention: C. Robert Butterfield if to the Warrant Agent: First Union National Bank 10 State House Square CT 5845 Hartford, CT 06103-3698 Attention: Corporate Trust Administration The Company or the Warrant Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. 31 35 Any notice or communication mailed to a Holder shall be mailed to the Holder at the Holder's address as it appears on the register in which the Company shall provide for the registration of Warrants and Warrant Shares and of transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 7.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF ITSELF, HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF ITSELF, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 7.9 Successors. All agreements of the Company in this Agreement and the Warrant Certificates shall bind its successors. All agreements of the Warrant Agent in this Agreement shall bind its successors. SECTION 7.10 Multiple Originals. The parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Agreement. SECTION 7.11 Table of Contents. The table of contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 7.12 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole 32 36 or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. SECTION 7.13 Further Assurances. From time to time on and after the date hereof, the Company shall deliver or cause to be delivered to the Warrant Agent such further documents and instruments and shall do and cause to be done such further acts as the Warrant Agent shall reasonably request (it being understood that the Warrant Agent shall have no obligation to make such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected hereunder. 33 37 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: ---------------------------------------- Ed Donahue, Vice President and Secretary FIRST UNION NATIONAL BANK, as Warrant Agent, By: ---------------------------------------- Diane M. Welsh, Vice President 34 38 EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH TRANSAMERICAN REFINING CORPORATION ("THE COMPANY") ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D),(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO A-1 39 EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. [Unless and until it is exchanged in whole or in part for Warrants in definitive form, this Warrant may not be transferred except as a whole by the depository to a nominee of the depository or by a nominee of the depository to the depository or another nominee of the depository or by the depository or any such nominee to a successor depository or a nominee of such successor depository. The Depository Trust Company ("DTC") (55 Water Street, New York, New York) shall act as the depository until a successor shall be appointed by the Company and the Warrant Agent. Unless this certificate is presented by an authorized representative of DTC to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]* No. [ ] Certificate for ______ Warrants - -------- * To be included only if the Warrant is in global form. A-2 40 WARRANTS TO PURCHASE COMMON STOCK OF TRANSAMERICAN REFINING CORPORATION THIS CERTIFIES THAT, [ ], or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from TransAmerican Refining Corporation, a Texas corporation ("the Company"), initially 13.344257 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock") at the per share exercise price of $0.01 (the "Exercise Price"). This Warrant Certificate shall terminate and become void as of the close of business on June 30, 2003 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares purchasable upon exercise of the Warrants and the Exercise Price per share shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of March 16, 1998 (the "Warrant Agreement"), between the Company and First Union National Bank (the "Warrant Agent," which term includes any successor Warrant Agent under the Warrant Agreement), and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent at First Union National Bank, 10 State House Square CT 5845, Hartford, CT 06103-3698, attention of Corporate Trust Administration. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by presentation of this Warrant Certificate. As provided in the Warrant Agreement and subject to the terms and conditions therein set forth, the Warrants shall be exercisable at any time or from time to time on any Business Day only on or after December 30, 1998; provided, however, that no Warrant shall be exercisable after June 30, 2003. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 5.2 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. A-3 41 Upon any partial exercise of the Warrants, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Market Price for one Warrant Share on the trading day immediately preceding the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of any Warrant. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and nonassessable. The Holder in whose name the Warrant Certificate is registered may be deemed and treated by the Company and the Warrant Agent as the absolute owner of the Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. A-4 42 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. TRANSAMERICAN REFINING CORPORATION By: --------------------------------- Name: --------------------------------- Title: --------------------------------- Attest: - ---------------------------------------- Secretary DATED: Countersigned: FIRST UNION NATIONAL BANK, as Warrant Agent, By: ----------------------------------- Authorized Signatory A-5 43 SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS* The following exchanges of a part of this Global Warrant for definitive Warrants have been made:
Number of Warrants in Amount of this Global increase/ Warrant Signature of decrease in Number following authorized Date of of Warrants in such increase/ officer of Exchange this Global Warrant decrease Warrant Agent
- -------- * To be included only if the Warrant is in global form. A-6 44 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of TransAmerican Refining Corporation (the "Company") This Certificate relates to Warrants held in definitive form by ________ (the "Transferor"). The Transferor has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of this Warrant does not require registration under the Securities Act of 1933 (the "Securities Act") because *: [_] Such Warrant is being acquired for the Transferor's own account without transfer. [_] Such Warrant is being transferred to the Company. [_] Such Warrant is being transferred pursuant to an effective registration statement pursuant to the Securities Act. [_] Such Warrant is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. [_] Such Warrant is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on such Rule 144A. [_] Such Warrant is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain: ________________).** - -------- * Please check applicable box. ** If this box is checked, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. B-1 45 The Warrant Agent and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. , --------------------------------- [INSERT NAME OF TRANSFEROR] By: ------------------------------ Date: ------------------------------ B-2 EX-4.29 12 REGISTRATION RIGHTS AGREEMENT - SERIES C SEN. NOTE 1 EXHIBIT 4.29 TRANSAMERICAN REFINING CORPORATION $25,000,000 16% Series C Senior Subordinated Notes due 2003 REGISTRATION RIGHTS AGREEMENT March 16, 1998 Jefferies & Company, Inc. 11100 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: TransAmerican Refining Corporation, a Texas corporation (the "Company"), is issuing and selling to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in the Purchase Agreement (as defined below), $25,000,000 aggregate principal amount of its 16% Series C Senior Subordinated Notes due 2003 (the "Notes"). As an inducement to the Purchaser to enter into the Purchase Agreement, the Company agrees with the Purchaser, for the benefit of the holders of the Securities (as defined below) (including, without limitation, the Purchaser), as follows: 1. Definitions. Capitalized terms used but not defined herein have the respective meanings given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" has the meaning given to such term in Section 6. "Agreement" means this Registration Rights Agreement. "Applicable Period" has the meaning given to such term in Section 2(f). "Business Day" means any day other than (i) Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Closing Date" means March 16, 1998. "Company" has the meaning given to such term in the introductory paragraph hereof. "Effectiveness Date" means the later of the 135th day following the Closing Date and the "Effectiveness Date" as defined under the Series A Registration Rights Agreement. "Effectiveness Period" has the meaning given to such term in Section 3(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Exchange Offer" has the meaning given to such term in Section 2(a). 2 "Exchange Offer Registration Statement" has the meaning given to such term in Section 2(a). "Exchange Securities" means 16% Series D Senior Subordinated Notes due 2003, of the Company, identical in all respects to the Notes, except for references to series and restrictive legends; provided, however, that if the Company can issue in exchange for the Notes (i) 16% Series B Senior Subordinated Notes due 2003, pursuant to the Series A/B Indenture or (ii) such other security issued in exchange for the Company's Series A Notes, pursuant to the Series A Registration Rights Agreement, then Exchange Securities shall mean such Series B Notes or such other security. "Filing Date" means the later of the 75th day following the Closing Date and the "Filing Date" as defined under the Series A Registration Rights Agreement. "Holder" means each holder of Registrable Securities. "Indemnified Party" has the meaning given to such term in Section 8(c). "Indemnifying Party" has the meaning given to such term in Section 8(c). "Indenture" means the Indenture dated the date hereof between the Company and First Union National Bank, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time, in accordance with the terms thereof. "Initial Shelf Registration" has the meaning given to such term in Section 3(a). "Losses" has the meaning given to such term in Section 8(a). "NASD" means the National Association of Securities Dealers, Inc. "Notes" has the meaning given to such term in the introductory paragraph hereof. "Participating Broker-Dealer" has the meaning given to such term in Section 2(f). "Person" means an individual, trustee, corporation, partnership, joint stock company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof, union, business association, firm or other entity. "Private Exchange" has the meaning given to such term in Section 2(g). "Private Exchange Securities" has the meaning given to such term in Section 2(g). "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including 3 post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Purchaser" has the meaning given to such term in the introductory paragraph hereof. "Purchase Agreement" means the Purchase Agreement dated as of March 6, 1998 by and between the Company and the Purchaser. "Registrable Securities" means (i) Notes, (ii) Private Exchange Securities and (iii) Exchange Securities received in the Exchange Offer that may not be sold without restriction under federal or state securities law. "Registration Default Date" has the meaning given to such term in Section 4(a). "Registration Statement" means any registration statement of the Company that covers any of the Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. "Rule 415" means Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "SEC" means the Securities and Exchange Commission. "Securities" means the Notes, the Private Exchange Securities and the Exchange Securities, collectively. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Series A/B Indenture" means the Indenture dated as of December 30, 1997 between the Company and First Union National Bank, as trustee, providing for the issuance of the Series A/B Notes, as such may be amended and supplemented. "Series A/B Notes" means the Company's 16% Senior Subordinated Notes due 2003 issued pursuant to the Series A/B Indenture. "Series A Notes" means the Company's 16% Senior Subordinated Notes due 2003, Series A, issued pursuant to the Series A/B Indenture. "Series A Registration Rights Agreement" means the Registration Rights Agreement dated December 30, 1997 between the Company and the Purchaser relating to the Series A/B Notes, as amended or supplemented from time to time. "Shelf Notice" has the meaning given to such term in Section 2(i). 4 "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. "Special Counsel" means counsel chosen by the holders of a majority in aggregate principal amount of Securities. "Subsequent Shelf Registration" has the meaning given to such term in Section 3(b). "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the trustee under the Indenture and, if any, the trustee under any indenture governing the Exchange Securities or the Private Exchange Securities. "Underwritten Registration" or "Underwritten Offering" means a registration in which securities of the Company are sold to an underwriter for reoffering to the public. "Weekly Liquidated Damages Amount" has the meaning given to such term in Section 4(a). 2. Exchange Offer. (a) The Company shall (i) prepare and file with the SEC promptly after the date hereof, but in no event later than the Filing Date, a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer (the "Exchange Offer") to the Holders to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of Exchange Securities, (ii) use its best efforts to cause the Exchange Offer Registration Statement to become effective as promptly as practicable after the filing thereof, but in no event later than the Effectiveness Date, (iii) keep the Exchange Offer Registration Statement effective until the consummation of the Exchange Offer pursuant to its terms, and (iv) unless the Exchange Offer would not be permitted by a policy of the SEC, commence the Exchange Offer and 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, Exchange Securities in exchange for all Notes tendered prior thereto in the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than (i) that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC and (ii) as otherwise expressed herein. (b) The Exchange Securities shall be issued under, and entitled to the benefits of, the Indenture, the Series A/B Indenture or a trust indenture that is substantially identical to the Indenture or the Series A/B Indenture (other than such changes as are necessary to (i) provide for the issuance of Exchange Securities that are the same as the securities issued in exchange for the Series A Notes pursuant to the Series A Registration Rights Agreement or (ii) comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA). (c) In connection with the Exchange Offer, the Company shall: 5 (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal that is an exhibit to the Exchange Offer Registration Statement and related documents; (ii) keep the Exchange Offer open for not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depository for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open; and (v) otherwise comply with all laws applicable to the Exchange Offer. (d) As soon as practicable after the close of the Exchange Offer, the Company shall: (i) accept for exchange all Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer; (ii) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (iii) cause the Trustee promptly to authenticate and deliver to each Holder of Notes, Exchange Securities equal in aggregate principal amount to the Notes of such Holder so accepted for exchange. (e) Interest on each Exchange Security and Private Exchange Security will accrue (or principal will accrete, as applicable) from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Exchange Security and Private Exchange Security shall bear interest at the rate set forth thereon; provided, that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Notes from time to time during such period. (f) The Company shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," containing a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including (without limitation) all Participating Brokers-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirement of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Securities; provided that such 6 period shall not exceed 180 days after consummation of the Exchange Offer (as such period may be extended pursuant to the last paragraph of Section 6 (the "Applicable Period"). (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. (h) The Company may require each Holder participating in the Exchange Offer to represent to the Company that at the time of the consummation of the Exchange Offer (i) any Exchange Securities received by such Holder in the Exchange Offer will be acquired in the ordinary course of its business, (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities within the meaning of the Securities Act or resale of the Exchange Securities in violation of the Securities Act, (iii) if such Holder is not a broker-dealer, that it is not engaged in and does not intend to engage in, the distribution of the Exchange Securities, (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Notes that were acquired as a result of market-making or other trading activities, that it will deliver a prospectus, as required by law, in connection with any resale of such Ex! change Securities and (v) if such Holder is an affiliate of the Company, that it will comply with the registration and prospectus delivery requirements of the Securities Act applicable to it. (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 the later of 195 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 (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act) and, in either case contemplated by this clause (v), such Holder notifies the Company within six months of consummation of the Exchange Offer, then the Company 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 7 thereof (the "Shelf Notice") and shall as promptly as possible thereafter file an Initial Shelf Registration pursuant to Section 3. 3. Shelf Registration. If a Shelf Notice is required to be delivered pursuant to Section 2(a)(i), (ii), (iii) or (iv), then this Section 3 shall apply to all Registrable Securities. Otherwise, upon consummation of the Exchange Offer in accordance with Section 2, the provisions of this Section 3 shall apply solely with respect to (i) Notes held by any Holder thereof not permitted to participate in the Exchange Offer and (ii) Exchange Securities that are not freely tradeable as contemplated by Section 2(i)(v). (a) Initial Shelf Registration. The Company shall use its best efforts to prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration"). If the Company has not yet filed an Exchange Offer Registration Statement, the Company shall use its best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company shall use its best efforts to file the Initial Shelf Registration within 20 days of the delivery of the Shelf Notice or as promptly as possible following the request of the Purchaser. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by such holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall (i) not permit any securities other than the Registrable Securities to be included in any Shelf Registration, and (ii) use its best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act as promptly as practicable after the filing thereof and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date that is 24 months from the Effectiveness Date (subject to extension pursuant to the last paragraph of Section 6) (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration have been sold or (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If any Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Registrable Securities registered thereunder), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration, and any Subsequent Shelf Registration, was previously effective. 8 4. Liquidated Damages. (a) The Company acknowledges and agrees that the holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if the Company fails to fulfill its obligations hereunder. Accordingly, in the event of such failure, the Company agrees to pay liquidated damages to each Holder under the circumstances and to the extent set forth below: (i) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed with the SEC on or prior to the Filing Date; or (ii) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date; or (iii) if the Company has not accepted for exchange all Notes validly tendered in accordance with the terms of the Exchange Offer within 30 Business Days after the date on which an Exchange Offer Registration Statement is declared effective by the SEC; or (iv) if a Shelf Registration is filed and declared effective by the SEC but thereafter ceases to be effective without being succeeded within 30 days by a Subsequent Shelf Registration filed and declared effective; (each of the foregoing a "Registration Default," and the date on which the Registration Default occurs being referred to herein as a "Registration Default Date"). Upon the occurrence of any Registration Default, the Company shall be obligated to pay, or cause to be paid, in addition to amounts otherwise due under the Indenture and the Registrable Securities, as liquidated damages, and not as a penalty, to each holder of a Registrable Security, an additional amount (the "Weekly Liquidated Damages Amount") equal to (A) for each weekly period beginning on the Registration Default Date for the first 120-day period immediately following such Registration Default Date, $0.05 per week per $1,000 principal amount of Registrable Securities held by such holder, and (B) for each weekly period beginning with the first full week after the 120-day period set forth in the foregoing clause (A), $0.15 per week per $1,000 principal amount of Registrable Securities held by such holder; provided that such liquidated damages will, in each case, cease to accrue (subject to the occurrence of another Registration Default) on the date on which all Registration Defaults have been cured. A Registration Default under clause (i) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is filed with the SEC; a Registration Default under clause (ii) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is declared effective by the SEC; a Registration Default under clause (iii) above shall be cured on the earlier of the date (A) the Exchange Offer is consummated with respect to all Notes validly tendered or (B) the Company delivers a Shelf Notice to the Holders; and a Registration Default under clause (iv) above shall be cured on the earlier of (A) the date on which the applicable Shelf Registration is no longer subject to an order suspending the effectiveness thereof or proceedings relating thereto or (B) a Subsequent Shelf Registration is declared effective. (b) The Company shall notify the Trustee within five Business Days after each Registration Default Date. The Company shall pay the liquidated damages due on the Registrable Securities by depositing with the Trustee, in trust, for the 9 benefit of the Holders thereof, by 12:00 noon, New York City time, on or before the semi-annual interest payment date for any of the Registrable Securities, immediately available funds in sums sufficient to pay the liquidated damages then due. The liquidated damages amount due shall be payable on each interest payment date to the Holder entitled to receive the interest payment to be made on such date as set forth in the Indenture. 5. Hold-Back Agreements. The Company agrees (i) without the prior written consent of the Holders of a majority of the aggregate principal amount of the then outstanding Securities, not to effect any public or private sale or distribution (including a sale pursuant to Regulation D under the Securities Act) of any securities the same as or substantially similar to those covered by a Registration Statement filed pursuant to Section 2 or 3, or any securities convertible into or exchangeable or exercisable for such securities, during the 10 days prior to, and during the 90-day period beginning on, (A) the effective date of any Registration Statement filed pursuant to Sections 2 and 3, unless the Holders of a majority in aggregate principal amount of Registrable Securities to be included in such Registration Statement consent or (B) the commencement of an underwritten public distribution of Registrable Securities, where the managing underwriter so requests; and (ii) to cause each holder of such securities that are the same as or substantially similar to Registrable Securities issued at any time after the date of this Agreement (other than securities purchased in a registered public offering) to agree, unless prevented by applicable statute or regulation, not to effect any public sale or distribution of any such securities during such periods, including a sale pursuant to Rule 144 or Rule 144A. 6. Registration Procedures. In connection with the registration of any Securities pursuant to Sections 2 or 3, the Company shall effect such registrations to permit the sale of such Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Prepare and file with the SEC, as soon as practicable after the date hereof but in any event on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that, if (i) such filing is pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall, if requested, furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, their Special Counsel, each Participating Broker-Dealer, the managing underwriters, if any,! and their counsel, a reasonable opportunity to review and make available for inspection by such Persons copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed, such financial and other information and books and records of the Company, and cause the officers, directors and employees of the Company, Company counsel and independent certified public accountants of the Company, to respond to such inquiries, as shall be necessary, in the opinion of respective counsel to such holders, Participating Broker-Dealer and underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company may require each Holder to agree to keep confidential any non-public information relating to 10 the Company received by such Holder and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 6(a)) until such in! formation has been made generally available to the public unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, their Special Counsel, any Participating Broker-Dealer or the managing underwriters, if any, or their counsel shall reasonably object. (b) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture (or other indenture relating to the Registrable Securities) to be qualified under the TIA not later than the effective date of the first Registration Statement; and in connection therewith, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (c) Prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods required hereby; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable thereto with respect to the disposition of all securities covered by such Registration Statement, as so amended, or in such Prospectus, as so supplemented, in accordance with the intended methods of distribution set forth in such Registration Statement or Prospectus as so amended. (d) Furnish to such selling Holders and Participating Broker-Dealers who so request (i) upon the Company's receipt, a copy of the order of the SEC declaring such Registration Statement and any post-effective amendment thereto effective and (ii) such reasonable number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (iii) such reasonable number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such reasonable number of copies of the final Prospectus as filed by the Company pursuant to Rule 424(b) under the Securities Act, in conformity with the requirements of the Securities Act, and (iv) such other documents (including any amendments required to be filed pursuant to clause (c) of this Section), as any such Person may reasonably request. The Company hereby consent to the use of the Prospectus by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities 11 or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment thereto. (e) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to 12 7. Registration Expenses. a. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, regardless of whether the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation: i. all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the Holders are located, in the case of the Exchange Securities, or (y) as provided in Section 6(f), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period); ii. printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be); iii. messenger, telephone, duplication, word processing and delivery expenses incurred by the Company in the performance of its obligations hereunder; iv. fees and disbursements of counsel for the Company; v. fees and disbursements of all independent certified public accountants referred to in Section 6(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); vi. fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD, but only where the need for such a "qualified independent underwriter" arises due to a relationship with the Company; vii. Securities Act liability insurance, if the Company so desires such insurance; viii. fees and expenses of all other Persons retained by the Company; internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting 13 duties); and the expense of any annual audit; and ix. rating agency fees and the fees and expenses incurred in connection with the listing of the Securities to be registered on any securities exchange. b. The Company shall reimburse the Holders for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Securities to be included in any Registration Statement and other reasonable and necessary out-of-pocket expenses of the Holders incurred in connection with the registration of the Registrable Securities. 1. Indemnification. a. Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless each Holder and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and the officers, directors, partners, employees, representatives and agents of each such Holder, Participating Broker-Dealer and controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees) and expenses (including, without limitation, reasonable costs and expenses incurred in connection with investigating, preparing, pursuing or defending against any of the foregoing) (collectively, "Losses"), as incurred, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus, or in any amendment or supplement thereto, or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such Losses are based upon information relating to such Holder or Participating Broker-Dealer and furnished in writing to the Company by such Holder or Participating Broker-Dealer expressly for use therein; provided, however, that the Company shall not be liable to any Indemnified Party to the extent that any such losses arise solely out of an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Indemnified Party or related holder of a Registrable Security failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Indemnified Party or the related holder of a Registrable Security to the person asserting the claim from which such Losses arise, (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission, and (iii) the Company has complied with its obligations under Section 6(e). The Company shall also, jointly and severally, indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders or the Participating Broker-Dealer. b. Indemnification by Holder of Registrable Securities. In connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement 14 thereto, or any preliminary prospectus in which a Holder is participating, such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus and shall, without limitation as to time, indemnify and hold harmless the Company, its officers, directors, partners, employees, representatives and agents, each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange Act), and the officers, directors, partners, employees, representatives and agents of such controlling persons, to the fullest extent lawful, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent, but only to the extent, that such untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact is contained in any information so furnished in writing by such holder to the Company expressly for use therein. In no event shall the liability of any selling Holder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. c. Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the party or parties from which such indemnity is sought (the "Indemnifying Parties") in writing; provided, that the failure to so notify the Indemnifying Parties shall not relieve the Indemnifying Parties from any obligation or liability except to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal) that the Indemnifying Parties have been prejudiced materially by such failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party, within 20 Business Days after receipt of written notice from such Indemnified Party of such Proceeding, to assume, at its expense, the defense of any such Proceeding, provided, that an Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Party has agreed to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding or shall have failed to employ counsel reasonably satisfactory to such Indemnified Party; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party or any of its affiliates or controlling persons, and such Indemnified Party shall have been advised by counsel that there may be one or more defenses available to such Indemnified Party that are in addition to, or in conflict with, those defenses available to the Indemnifying Party or such affiliate or controlling person (in which case, if such Indemnified Party notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense thereof and the reasonable fees and expenses of such counsel shall be at the expense of the Indemnifying Party; it being understood, however, that, the Indemnifying Party shall not, in connection with any one such Proceeding or separate but 15 substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Parties). No Indemnifying Party shall be liable for any settlement of any such Proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such Proceeding, each Indemnifying Party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each Indemnified Party from and against any and all Losses by reason of such settlement or judgment. The Indemnifying Party shall not consent to the entry of any judgment against an indemnified party or enter into any settlement that imposes any obligation on any indemnified party that does not include as a term thereof the giving by the claimant or plaintiff to each Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such Proceeding for which such Indemnified Party would be entitled to indemnification hereunder (regardless of whether any Indemnified Party is a party thereto). d. Contribution. If the indemnification provided for in this Section 8 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms (other than by reason of exceptions provided in this Section 8), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall have a joint and several obligation to contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such statement or omission. The amount paid or payable by an Indemnified Party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any Proceeding, to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 8(a) or 8(b) was available to such party. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an Indemnifying Party that is a selling Holder shall not be required to contribute, in the aggregate, any amount in excess of such Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution Amount" shall equal the excess of (i) the aggregate proceeds received by such Holder pursuant to the sale of such Registrable Securities over (ii) the aggregate amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to 16 contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 2. Rule 144 and Rule 144A. The Company covenants that it shall (a) file the reports required to be filed by it (if so required) under the Securities Act and the Exchange Act in a timely manner and, if at any time any such Person is not required to file such reports, it will, upon the request of any Holder, make publicly available other information necessary to permit sales pursuant to Rule 144 and Rule 144A and (b) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether they have complied with such information and requirements. 3. Underwritten Registrations. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering. No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 4. Miscellaneous. a. Remedies. In the event of a breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Purchaser, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. b. No Inconsistent Agreements. The Company has not entered into, as of the date hereof, and shall not enter into, after the date of this Agreement, any agreement with respect to any of its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. c. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Registrable Securities; provided, that Sections 6(a) and 8 shall not be amended, modified or supplemented, and waivers or consents to departures from this proviso may not be given, unless the Company has obtained the written consent of each Holder affected thereby. Notwithstanding the foregoing, a waiver or consent to depart from the provisions 17 hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. d. Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, certified first-class mail, return receipt requested, next-day air courier or facsimile: i. if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 11(d), which address initially is, with respect to each Holder, the address of such holder maintained by the Registrar under the Indenture, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, telecopy number (213) 687-5600, Attention: Rodrigo A. Guerra, Jr.; and ii. if to the Company, at 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas 77032-2949, telecopy number (281) 986-8865, Attention: President, with a copy to Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, Dallas, Texas 75201, telecopy number (214) 999-4667, Attention: C. Robert Butterfield; and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 11(d). All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. e. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. f. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. g. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 18 h. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. i. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. j. Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company in respect of securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. k. Attorneys' Fees. In any Proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the courts, shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 19 l. Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than Holders deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage. [Signature Page Follows] 20 REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: ---------------------------------------- Ed Donahue, Vice President and Secretary Accepted and Agreed to: JEFFERIES & COMPANY, INC. By: ---------------------------- Joe Maly, Managing Director EX-4.30 13 SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.30 TRANSAMERICAN REFINING CORPORATION SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT March 16, 1998 JEFFERIES & COMPANY, INC. 11100 Santa Monica Blvd. 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: TransAmerican Refining Corporation (the "Company"), a Texas corporation, pro poses to issue and sell to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in a purchase agreement, dated as of March 6, 1998 (the "Purchase Agreement"), between the Purchaser and the Company, 25,000 Units (as defined below), consisting of (i) $25,000,000 aggregate principal amount of 16% Senior Subordinated Notes due 2003, Series C (the "Series C Notes") and (ii) 25,000 warrants (the "Warrants") to purchase initially 333,606 shares (the "Warrant Shares") of the Issuer's common stock, $0.01 par value per share (together with any securities issued in exchange therefor or in substitution thereof, the "Common Stock"), at an exercise price of $0.01 per share. The Series C Notes will be issued pursuant to an indenture (the "Indenture"), to be dated as of March 16, 1998, between the Issuer and First Union National Bank, as trustee (the "Trustee"). The Warrants are to be issued pursuant to a warrant agreement (the "Warrant Agreement"), to be dated as of March 16, 1998, between the Issuer and the warrant agent named therein (the "Warrant Agent"). The Series C Notes and the Warrants will be sold in Units, each Unit consisting of (i) one Series C Note in the principal amount of $1,000 and (ii) one Warrant to purchase initially 13.344257 Warrant Shares at an exercise price of $0.01 per share (the "Units"). Unless the context requires otherwise, references herein to "Securities" shall be deemed to include the Units, the Series C Notes (as defined below), Warrants, and Warrant Shares upon initial issuance to the Purchaser as well as following separation. As an inducement to the Purchaser to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchaser thereunder, the Company agrees with the Purchaser, (i) for the benefit of the Purchaser and (ii) for the benefit of the holders from time to time of the Warrants and the Warrant Shares, as follows: 2 1. Definitions. Capitalized terms used but not defined herein shall have the respective meaning given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified person, means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified per son. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day other than (i) Saturday or Sunday or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "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. "Disqualified Capital Stock" means, with respect to any Person, any Capital Stock of such person or its subsidiaries that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such Person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to June 30, 2003. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" means the Persons with a beneficial interest in the Warrant Shares or other Registrable Securities. "Initiating Holders" means one or more Holders of the Requisite Securities. "Officer's Certificate" means a certificate signed by any one of the Chairman, any Vice Chairman, any Chief Executive Officer, any Senior Vice President or the Chief Financial Officer. 2 3 "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Person" means an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. "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. "Registrable Securities" means any of (i) the Warrant Shares (whether or not the related Warrants have been exercised), and (ii) any other securities issued or issuable with respect to any Warrant Shares, by way of stock dividends or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Registration Statement, (ii) such securities are eligible for sale to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under the Securities Act, (iii) such securities shall have been otherwise transferred by such Holder thereof and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (iv) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), preparing, printing, filing, duplicating and distributing the Registration Statement and the related prospectus, the cost of printing stock certificates, the cost and charges of any transfer agent, rating agency fees, printing expenses, messenger, telephone and delivery expenses, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants, the fees and disbursements of 3 4 underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Selling Holders), reasonable fees and expenses of one counsel for the Holders and other reasonable out-of-pocket expenses of Holders. "Registration Statement" shall mean any appropriate registration statement of the Company filed with the SEC pursuant to the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Securities" shall mean a number of Registrable Securities equal to not less than 25% of the Registrable Securities held in the aggregate by all Holders. "Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 144A" means Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 174" means Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 424" means Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended form time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. 4 5 "Selling Holder" shall mean a Holder who is selling Registrable Securities in accordance with the provisions of this Agreement. "Series A Registration Rights Agreement" means the Securityholders' and Registration Rights Agreement dated December 30, 1997 between the Company and the Purchaser. "Special Counsel" means any special counsel to the Holders, for which Holders will be reimbursed pursuant to this Agreement. 2. Demand Registration. (a) From time to time after 180 days following the completion by the Company of a Public Equity Offering, one or more Initiating Holders may request in writing that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and shall specify the intended method of disposition thereof (the "Demand Request"). The Company will give written notice of the Demand Request to all registered holders of Registrable Securities within fifteen (15) days of receipt thereof. Within 120 days of receipt of the Demand Request the Company will, subject to the terms of this Agreement, file a Registration Statement and use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 20 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities); and (iii) all shares of securities which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional securities so to be registered. (b) Registrations under this Section (each, a "Demand Registration") shall be on such appropriate registration form of the SEC (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. 5 6 (c) The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2. The Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, in connection with each Registration Statement requested under this Section 2, which costs shall be allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration, on the basis of the respective amounts of the Registrable Securities then being registered on their behalf. (d) The Holders shall be entitled to request two (2) registrations pursuant to this Section 2. A Registration Statement requested pursuant to this Section 2 shall not be deemed to have been effected (i) unless a Registration Statement with respect thereto has been declared effective by the SEC and (ii) the Company has complied in a timely manner and in all material respects with all of its obligations under this Agreement; provided, (i) if, after such Registration Statement has become effective, the offering of Warrant Shares pursuant to such Registration Statement is or becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Warrant Shares under such Registration Statement for any reason, other than by reason of some act or omission by any Holder participating in such registration, and does not become effective within a reasonable period of time thereafter, such period not to exceed 60 days from the date of such stop order, injunction, or other governmental order or requirement, (ii) the Registration Statement does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Selling Holders of all of the Registrable Securities covered thereby or (iii) if the Selling Holders are not able to sell at least 80% of the Registrable Securities to be included therein, less any Registrable Securities withdrawn or excluded from such Demand Registration in accordance with the provisions hereof, then, in each case, such Registration Statement shall be deemed not to have been effected. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not in effect shall be excluded. The Holders shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. (e) If a requested registration pursuant to this Section 2 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each Holder requesting registration) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the Holders, pro rata among such holders requesting such registration on the basis of the number of such securities requested to be included by such Holders and (ii) second, securities held by other Persons, including the Company. 6 7 3. Piggy-Back Registration. (a) If at any time after the Company has completed a Public Equity Offering the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of the holders of any class of its Common Stock in a firmly underwritten Public Equity Offering (other than (i) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a Registration Statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event fewer than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Warrant Shares as each such Holder may request in writing within 30 days after receipt of such written notice from the Company (which request shall specify the Warrant Shares intended to be disposed of by such Selling Holder) (a "Piggy-Back Registration"). Upon the written request of any such Holder made within 30 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement that covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 3 shall relieve the Company of its obligation to effect any registration upon request under Section 2, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2. (b) The Company shall use its best efforts to keep such Piggy-Back Registration continuously effective under the Securities Act until the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Warrant Shares covered thereby. The Company shall use its reasonable efforts to cause the managing underwriter or underwriters of such proposed offering to permit the 7 8 Registrable Securities requested to be included in a Piggy-Back Registration to be included in the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to these provisions by giving written notice to the Company of its request to withdraw. (c) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3 and the Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, relating to the sale of such Selling Holders' Registrable Securities pursuant to this Section 3, such costs being allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration, on the basis of the respective amounts of Registrable Securities then being registered on their behalf. (d) Priority in Piggy-Back Registrations. If a registration pursuant to this Section 3 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, the Company will, if requested by any Holder and subject to the provisions of this Section 3, use its reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. Notwithstanding anything to the contrary, if the managing underwriter of such underwritten offering shall, in writing, inform the Holders requesting such registration and the holders of any of the Company's other securities which shall have exercised registration rights in respect of such underwritten offering of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then, in such event, (x) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities that the Company proposes to register, (ii) second, the securities that have been requested to be registered pursuant to the Series A Registration Rights Agreement, (iii) third, the securities that have been requested to be included in such registration by Holders (pro rata on the amount of securities sought to be registered by such Holders), and (iv) fourth, the securities that have been requested to be included in such registration by Persons (other than Holders) entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata on the amount of securities sought to be registered by such Persons); and (y) in cases not initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering as follows: (i) first, the securities of any person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (provided that if such person is a Holder, there shall be no priority as among Holders and Warrant Shares sought to be included by Holders shall be included pro rata based on the amount of securities sought to be registered by such persons), (ii) second, the securities that have been requested to be included in such registration pursuant to the Series A Registration Rights 8 9 Agreement, (iii) third, the securities that have been requested to be included in such registration by Holders (pro rata on the amount of securities sought to be registered by such Holders), (iv) fourth, securities of other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such persons) and (v) fifth, the securities which the Company proposes to register. 4. Registration Procedures. In connection with any Demand Registration or Piggy-back Registration, the Company shall: (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), if requested, furnish to the Holders, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, their Special Counsel and such underwriters, if any, cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act, and shall use reasonable efforts to reflect in each such document filed pursuant to a Demand Registration, when so filed with the SEC, such reasonable comments as the Holders, their Special Counsel and the managing underwriters, if any, may propose in writing; provided, however, that the Company shall not be deemed to have kept a Registration Statement effective during the applicable period if it voluntarily takes or fails to take any action that results in Selling Holders covered thereby not being able to sell such Registrable Securities pursuant to Federal securities laws during that period; provided, further, the Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto in connection with a Demand Registration to which the Holders of a majority of the Registrable Securities, their Special Counsel, or the managing underwriters, if any, shall reason ably object on a timely basis; (b) Take such action as may be necessary so that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated herein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. 9 10 (c) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (d) Notify the Selling Holders, their Special Counsel and the managing underwriters, if any, promptly (and in the case of an event specified by clause (i)(A) of this paragraph in no event fewer than two Business Days prior to such filing), and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of either the Company contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated there in by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to such Registration Statement would be appropriate; (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; 10 11 (f) If requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold in connection with such offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders reasonably agree should be included therein, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement; provided, however, that the Company shall not be required to take any action pursuant to this Section 4(f) that would, in the opinion of counsel for the Company, violate applicable law; (g) Furnish to each Selling Holder, their Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by each Holder (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (h) Deliver to each Selling Holder, their Special Counsel, and the under writers, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (i) Prior to any public offering of Registrable Securities, use its reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing, or, in the event of a non-underwritten offering, as the Holders of a majority of such Registrable Securities being sold may request; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform blue sky investigations and file registrations and qualifications required to be filed pursuant to this Section 4(i); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action that would subject them to general service of 11 12 process in any such jurisdiction where they are not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (j) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the DTC and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may request at least two Business Days prior to any sale of Registrable Securities; (k) Use its best efforts to cause the offering of the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required as a consequence of the nature of such Selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; provided, however, that the Company shall not be required to register the Registrable Securities in any jurisdiction that would subject them to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject or to require the Company to qualify to do business in any jurisdiction where it is not then so qualified; (l) Upon the occurrence of any event contemplated by Section 4(d)(vi) or 4(d)(vii), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders of the occurrence of any event contemplated by paragraph 4(d)(vi) or 4(d)(vii) above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made; (m) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, as applicable, to (i) provide the registrar for the Registrable Securities with certificates for such securities in a form eligible for deposit with the DTC and (ii) provide a CUSIP number for the Registrable Securities; (n) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing 12 13 underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by it), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and Special Counsel to the Holders of the Registrable Securities being sold), addressed to each Selling Holder and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and underwriters (iii) obtain customary "comfort" letters and updates thereof (including, if such registration includes an underwritten public offering, a "bring down" comfort letter dated the date of the closing under the underwriting agreement) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business which may hereafter be acquired by the Company for which financial statements and financial data are required to be included in the Registration Statement), addressed (where reasonably possible) to each Selling Holder and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and such other matters as reasonably required by the managing underwriter or underwriters and as permitted by the Statement of Auditing Standards No. 72; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Selling Holders and the underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate number of Registrable Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate number of the Registrable Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause 4(n)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (o) Make available for inspection by a representative of the Selling Holders, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, consultant or accountant retained by such Selling Holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company, and cause the officers, directors, agents and employees of the Company (including with respect to 13 14 business and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration, provided, however, the Company may first require that such Persons agree to keep confidential any non-public information relating to the Company received by such Person and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 4(o)) until such information has been made generally available to the public unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors); (p) Use its best efforts to cause the Warrant Shares issuable upon exercise of the Warrants to be quoted or listed on any exchange upon which the Company's Common Stock is then quoted or listed; (q) Comply with all applicable rules and regulations of the SEC and make generally available to their security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act), no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and (r) Use its best efforts to take all other steps necessary to effect the registration, offering and sale of the Registrable Securities covered by the Registration Statement. The Company may require each Selling Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the applicable Registration Statement and the Company may exclude from such registration the Registrable Securities of any Selling Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by 14 15 name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(v) or 4(d)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the 90-day period referred to in Section 2(d) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 5. Certain Limitations, Conditions and Qualifications to the Company's Obligations Under Sections 2 and 3. The obligations of the Company described in Sections 2 and 3 of this Agreement are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing or effectiveness of, or suspend the rights of any Holder to make sales pursuant to, any Registration Statement otherwise required to be prepared, filed and made and kept effective by it under the registration covenants described in Sections 2 hereof; provided, however, that the duration of such postponement or suspension may not exceed the earlier to occur of (A) 30 days after the cessation of the circumstances described in the next sentence of this paragraph on which such postponement or suspension is based or (B) 120 days after the date of the determination of the Board of Directors of the Company referred to in the next sentence, and the duration of such postponement or suspension shall be excluded from the calculation of the 90-day period described in Section 2(d) hereof. Such postponement or suspension may only be effected if the Board of Directors of the Company determines in good faith that the filing or effectiveness of, or sales pursuant to, such registration statement would materially impede, delay or interfere with any financing, offer or sale of securities, acquisition, corporate reorganization or other significant transaction involving the Company or any of its affiliates (whether or not planned, proposed or authorized prior to the exercise of demand registration rights hereunder or any other registration rights agreement) or require disclosure of material information which the 15 16 Company has a bona fide business purpose for preserving as confidential. If the Company shall so postpone the filing or effectiveness of, or suspend the rights of any Holders to make sales pursuant to, a Registration Statement it shall, as promptly as possible, notify any Selling Holders of such determination, and the Selling Holders shall (y) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Selling Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice, or (z) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted for purposes of the two Demand Registrations referred to in Section 2(d) hereof. (b) The Company shall not be required by this Agreement to include securities in a Registration Statement relating to a Piggy-back Registration above if (i) in the written opinion of counsel to the Company, addressed to the Holders seeking registration and delivered to them, the Holders of such securities seeking registration would be free to sell all such securities within the current calendar quarter, without registration, under Rule 144 under the Securities Act, which opinion may be based in part upon the representation by the Holders of such securities seeking registration, which registration shall not be unreasonably withheld, that each such Holder is not an affiliate of the Company within the meaning of the Securities Act, and (ii) all requirements under the Securities Act for effecting such sales are satisfied at such time. (c) The Company's obligations shall be subject to the obligations of the Selling Holders to furnish all information and materials and not to take any and all actions as may be required under Federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. 6. Indemnification (a) The Company agrees to indemnify and hold harmless each of (i) the Purchaser, (ii) each Holder (iii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (i) being hereinafter referred to as a "controlling person"), and (iv) the respective officers, directors, partners, employees, representatives and agents of the Purchaser, each Holder, each broker-dealer participating in an offering subject to this Agreement or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Person"), to the fullest extent lawful, from and against any and all losses, claims, damages, 16 17 liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of Prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing indemnity with respect to any preliminary Prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all fees and expenses; provided, however, that the failure to so notify the Company shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Company, (ii) the Company shall have failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and the Company and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local 17 18 counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred). The Company shall not be liable for any settlement of any such action effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Indemnified Person from and against any loss or liability by reason of such settlement. The Company shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement in which a Holder is participating, such Holder agrees, severally and not jointly, to indemnify and hold harmless each of the Company, its directors, its officers and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Indemnified Person but only with reference to information relating to such Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in such Registration Statement or any Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. In case any action shall be brought against the Company, any of their directors, any such officer or any person controlling the Company based on such Registration Statement and in respect of which indemnity may be sought against any Indemnified Person, the Indemnified Person shall have the rights and duties given to the Company (except that if the Company shall have assumed the defense thereof, such Indemnified Person shall not be required to do so, but may employ separate counsel therein and participate in defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnified Person), and the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the Indemnified Person, by Section 6(b) hereof. (d) If the indemnification provided for in this Section 6 is unavailable to an Indemnified Person in respect of any losses, claims, damages, liabilities or judgments referred to therein, then the Company, in lieu of indemnifying such Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Person on the other hand from the offering of the Warrant Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and each such Indemnified Person in connection with the statements or omissions (or alleged statements or omissions) which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and each such Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact 18 19 relates to information supplied by the Company or such Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Indemnified Person were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an the Company as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the total net profit received by it in connection with the sale of the Warrant Shares pursuant to this Agreement exceeds the amount of any damages which such Indemnified Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 6 will be in addition to any liability which the Company may otherwise have to the Indemnified Persons referred to above. The Indemnified Persons' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective amount of Warrant Shares included in any such Registration Statement by each Indemnified Person and not joint. 7. Rules 144 and 144A The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit, sales of its Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations If any of the Registrable Securities covered by any Registration Statement pursuant to a Demand Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate number of such Registrable Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). 19 20 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 9. Miscellaneous (a) Remedies. In the event of a breach by the Company, or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any person the right to request it to register any of its equity securities under the Securities Act unless the rights so granted are subject in all respects to the prior rights of the Holders set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. (c) [intentionally omitted]. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the written consent of the Holders of a majority of the then outstanding Registrable Securities is obtained; provided, however, that, for the purposes of this Agreement, Registrable Securities that are owned, directly or indirectly, by the Company or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate number of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (e) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, or facsimile: 20 21 (i) if to the Company: TransAmerican Refining Corporation 1300 North Sam Houston Parkway, Suite 320 Houston, Texas 77032-2949 Fax: (281) 986-8865 Attention: Ed Donahue with a copy to: Gardere & Wynne, L.L.P. 3000 Thanksgiving Tower Dallas, Texas 75201 Fax: (214) 999-4667 Attention: C. Robert Butterfield (ii) if to the Purchaser: Jefferies & Company, Inc. 111 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Fax: (310) 575-5299 Attention: Jerry M. Gluck with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue 34th Floor Los Angeles, California 90071 Fax: (213) 687-5600 Attention: Rod A. Guerra (iii) if to any other person who is then a registered Holder, to the address of such Holder as it appears in the share register of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited 21 22 in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Notwithstanding the foregoing, no transferee shall have any of the rights granted under this Agreement until such transferee shall acknowledge its rights and obligations hereunder by a signed written statement of such transferee's acceptance of such rights and obligations. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (i) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this 22 23 Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (k) Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (l) Entire Agreement. This Agreement, together with the Purchase Agreement, the Warrant Agreement, and the Indenture, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, the Purchase Agreement, the Warrant Agreement, and the Indenture supersede all prior agreements and understandings between the parties with respect to such subject matter. 23 24 Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, TRANSAMERICAN REFINING CORPORATION By: ---------------------------------------- Ed Donahue, Vice President and Secretary The foregoing Securityholders' and Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. JEFFERIES & COMPANY, INC. By: --------------------------- Joe Maly, Managing Director EX-4.31 14 NOTE PURCHASE AGREEMENT DATED 12/10/97 1 EXHIBIT 4.31 [EXECUTION COPY] ================================================================================ NOTE PURCHASE AGREEMENT between TRANSAMERICAN REFINING CORPORATION and MERRILL LYNCH CORPORATE BOND FUND, INC. - HIGH INCOME PORTFOLIO $36,000,000 Senior Secured Notes Due 2002 Dated as of December 10, 1997 ================================================================================ 2 Table of Contents
Page ARTICLE I DEFINITIONS ................................................................................................................ 1 Section 1.01. Defined Terms........................................................................... 1 Section 1.02. Certain Terms........................................................................... 12 Section 1.03. Rules of Construction................................................................... 12 ARTICLE II SALE AND PURCHASE OF NOTES ................................................................................................................ 12 Section 2.01. Authorization of Notes.................................................................. 12 Section 2.02. Sale and Purchase of Notes.............................................................. 13 Section 2.03. Closing; Funding........................................................................ 13 Section 2.04. Payments................................................................................ 13 Section 2.05. Fees.................................................................................... 13 Section 2.06. Interest Rate Limitation................................................................ 14 ARTICLE III PAYMENT AND REDEMPTION OF NOTES ................................................................................................................ 14 Section 3.01. Maturity Date........................................................................... 14 Section 3.02. Redemption.............................................................................. 14 ....................................................................................................... 17 Section 3.03. Repurchase of Notes Upon Change of Control.............................................. 17 Section 3.04. Pro Rata Redemptions/Repurchases........................................................ 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES ................................................................................................................ 19 Section 4.01. Representations and Warranties.......................................................... 19 Section 4.02. Certificates............................................................................ 22 ARTICLE V CONDITIONS TO CLOSING ................................................................................................................ 22 Section 5.01. Conditions Precedent.................................................................... 22 ARTICLE VI INFORMATION ................................................................................................................ 25 Section 6.01. Information............................................................................. 25
3 ARTICLE VII INTENTIONALLY OMITTED.................................................................................. 25 ARTICLE VIII COVENANTS.............................................................................................. 26 Section 8.01. Use of Proceeds......................................................................... 26 Section 8.02. Filing of Security Documents............................................................ 26 Section 8.03. Further Assurances...................................................................... 26 Section 8.04. Incorporation by Reference.............................................................. 26 ARTICLE IX EVENTS OF DEFAULT...................................................................................... 27 Section 9.01. Events of Default; Remedies............................................................. 27 Section 9.02. Remedies................................................................................ 29 Section 9.03. Remedies Cumulative..................................................................... 30 Section 9.04. Remedies Not Waived..................................................................... 30 ARTICLE X THE NOTES.............................................................................................. 30 Section 10.01. Registration, Exchange, and Transfer of Notes.......................................... 30 Section 10.02. Lost, Stolen, Damaged and Destroyed Notes.............................................. 30 ARTICLE XI MISCELLANEOUS.......................................................................................... 31 Section 11.01. Amendment and Waiver................................................................... 31 Section 11.02. Expenses and Taxes..................................................................... 31 Section 11.03. Survival of Representations and Warranties............................................. 32 Section 11.04. Successors and Assigns................................................................. 33 Section 11.05. Notices................................................................................ 33 Section 11.06. Indemnification........................................................................ 34 Section 11.07. Public Announcements................................................................... 35 Section 11.08. No Fiduciary Relationship.............................................................. 35 Section 11.09. Integration and Severability........................................................... 35 Section 11.10. Counterparts........................................................................... 35 Section 11.11. Governing Law.......................................................................... 36
2 4 SECTION 11.12. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE..................................................................................... 36 SECTION 11.13. MUTUAL WAIVER OF RIGHT TO TRIAL BY JURY................................................ 37 SECTION 11.14. Release of Collateral; Subordination................................................... 37
Appendix A - Principal Amounts and Payment Instructions Exhibit A - Form of Senior Secured Note Exhibit B - Form of Security Agreement Exhibit C - Form of Cash Collateral and Disbursement Agreement Exhibit D - Form of Mortgage Exhibit E - Form of Environmental Indemnity Agreement 3 5 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT, dated as of December 10, 1997 (the "Agreement"), by and between TRANSAMERICAN REFINING CORPORATION, a Texas corporation (together with its successors and assigns, the "Company") and Merrill Lynch Corporate Bond Fund, Inc. - High Income Portfolio (together with its successors and assigns, the "Purchaser"). W I T N E S S E T H: WHEREAS, prior to the date hereof, and pursuant to an Asset Purchase Agreement, dated as of September 19, 1997, between GATX Terminals Corporation, a Delaware corporation (together with its successors and assigns, "GATX"), and the Company (as it may be from time to time amended, modified or supplemented, the "Asset Purchase Agreement"), the Company has purchased from GATX the Acquired Assets (as such term is defined in the Asset Purchase Agreement, and herein referred to as the "Acquired Assets"); WHEREAS, the Company desires to issue and sell to Purchaser its Senior Secured Notes Due 2002 in an aggregate principal amount of Thirty Six Million Dollars ($36,000,000); and WHEREAS, subject to the terms and conditions hereinafter set forth, Purchaser is willing to purchase such Senior Secured Notes. NOW, THEREFORE, in consideration of the foregoing and for such other good and valuable consideration, the sufficiency and receipt of which each party hereto hereby acknowledges, the Company and Purchaser agree as follows: ARTICLE I DEFINITIONS Section 1.01. Defined Terms. For the purposes of this Agreement, the following terms shall have the following respective meanings: "Acquired Assets" shall have the meaning set forth in the recitals hereto. "Affiliate" means, with respect to any specified Person, (a) any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person or (b) any officer, director or controlling shareholder of such other Person. For purposes of this definition, the term "control" means (i) the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership 6 of voting securities, by contract, or otherwise, or (ii) without limiting the foregoing, the beneficial ownership of 5% or more of the voting power of the voting common equity of such Person (on a fully diluted basis) or of warrants or other rights to acquire such equity (whether or not presently exercisable). "Asset Purchase Agreement" shall have the meaning set forth in the recitals hereto. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors, as amended from time to time. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee of the Board of Directors of such Person authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "Business Day" means a day that is not a Saturday or Sunday or a day on which banks are required or otherwise authorized to close in either New York, New York or Houston, Texas. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participation or other ownership interests (however designated), of such Person and any rights (other than debt securities convertible into corporate stock), warrants or options to purchase any of the foregoing, including without limitation each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership provided, however, that with respect to the Company, "Capital Stock" shall not include warrants to purchase common stock of the Company either (i) currently outstanding or (ii) issued in connection with the issuance of Subordinated Debt of the Company. "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, or S&P respectively, and in each case maturing within one year after the date of acquisition, (f) shares of money market funds, including those of the TEC Indenture Trustee, that invest solely in United States dollars and 2 7 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 with 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 $10,000,000 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. "Change of Control" means (i) the liquidation or dissolution of, or the adoption of a plan of liquidation by, the Company, or (ii) any transaction, event or circumstance pursuant to which any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than John R. Stanley (or his heirs, his estate or any trust in which he or his immediate family members have, directly or indirectly, a beneficial interest in excess of 50%) and his Subsidiaries or the TEC Indenture Trustee, is or becomes the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable), directly or indirectly, of more than 50% of the total voting power of the Company's then outstanding Voting Stock; unless, at the time of the occurrence of an event specified in clause (ii), the Notes have an Investment Grade Rating; provided, however, that if at any time within 120 days after such occurrence, the Notes cease having an Investment Grade Rating, such event shall be a "Change of Control." "Change of Control Offer" shall have the meaning specified in Section 3.03. "Change of Control Payment Date" shall have the meaning specified in Section 3.03. "Change of Control Purchase Price" shall have the meaning specified in Section 3.03. "Closing Date" means the date of this Agreement. "Collateral" means all of the Property of the Company subject to the Lien of the Holders pursuant to the Security Documents. "Collateral Account" shall have the meaning provided in the Disbursement Agreement. "Common Stock" means the common stock, par value $.01 per share, of the Company, now or hereafter issued. "Company" has the meaning set forth in the preamble hereto. 3 8 "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Debt" shall have the meaning ascribed thereto in the TEC Indenture, and any defined term used therein not otherwise defined herein shall have the meaning ascribed thereto in the TEC Indenture. "Default" means an event or condition, the occurrence of which is, or with the lapse of time would be, or giving of notice, or both, would be an Event of Default. "Disbursement Agent" means State Street Bank and Trust Company, Inc., in its capacity as Disbursement Agent under the Disbursement Agreement, and any successor thereto. "Disbursement Agreement" means the Cash Collateral and Disbursement Agreement, among the Company, Purchaser and the Disbursement Agent substantially in the form of Exhibit C, as amended from time to time in accordance with the terms hereof. "Docks" means the three docks designated as "Ship Docks #s 1, 2 and 3" (formerly designated as "Ship Docks #2, 3 and 4") and all appurtenances thereto, situated on and in the Mississippi River adjacent to the portion of the Real Estate fronting on the Mississippi River, all as shown on the Survey (as "Ship Docks #s 2, 3 and 4"). "Dollars" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Eligible Institution" means a domestic commercial banking institution that has combined capital and surplus of not less than $500,000,000, whose debt is rated "A" (or higher) according to S&P or Moody's at the time as of which any investment or rollover therein is made. "Environmental Indemnity Agreement" means the Environmental Indemnity Agreement between the Parent and Purchaser, substantially in the form attached as Exhibit E, as amended from time to time in accordance with the terms thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "Event of Default" shall have the meaning specified in Section 9.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. 4 9 "Final Change of Control Put Date" shall have the meaning specified in Section 3.03. "GAAP" means generally accepted accounting principles as in effect in the United States on the Closing Date applied on a basis consistent with that used in the preparation of the audited financial statements of the Company included in the offering circular related to the TEC Indenture. "GATX" shall have the meaning set forth in the recitals hereto. "Government Securities" means direct obligations of, or other obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Holder" means the Person in whose name a Note is registered on the Company's books. "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 "-" other modifiers) by any rating agency or if any such rating agency has ceased using letter rating categories or if 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). "Lien" means any mortgage, lien, pledge, charge, security interest, or other encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement and any lease deemed to constitute a security interest and any option or other agreement to give any security interest). "Marketable Securities" means (a) Government Securities, (b) any certificate of deposit maturing not more than 270 days after the date of acquisition issued by, or time deposit of, an Eligible Institution, (c) commercial paper maturing not more than 270 days after the date of acquisition issued by a corporation (other than an Affiliate of the Company) with a rating, at the time as of which any investment therein is made, of "A-l" (or higher) according to S&P or "P-1" (or higher) according to Moody's, issued or offered by an Eligible Institution, (d) any bankers' acceptances or money market deposit accounts issued or offered by an Eligible Institution, and (e) any fund investing exclusively in investments of the types described in clauses (a) through (d) above. "Material Adverse Effect" means, with respect to any occurrence, failure, act or omission of any nature, individually or in the aggregate, a change or an effect which would 5 10 reasonably be expected to impair materially (i) the ability of the Company and its Subsidiaries, taken as a whole, to conduct its business substantially as now conducted; (ii) the business, operations, prospects or financial condition of the Company and its Subsidiaries taken as a whole; (iii) the ability of the Company to perform any of its obligations hereunder, under the Notes or under any Security Document to which it is a party; (iv) the validity or enforceability of this Agreement, the Notes or any Security Document; (v) the priority or enforceability of any security interest created hereby or by any Security Document and intended to be perfected hereunder or thereunder; or (vi) the ability of the Holders to exercise any of their rights or remedies hereunder, under the Notes or under any Security Document. "Maturity Date", when used with respect to the Notes, means the date on which the principal of such Notes becomes due and payable as therein or herein provided, whether at the Stated Maturity or Change of Control Payment Date or by declaration of acceleration, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. "Mortgage(s)" has the meaning specified in Section 5.01(a)(v). "NASD" means the National Association of Securities Dealers, Inc. "Note(s)" means the Company's Senior Secured Notes Due 2002, substantially in the form of Exhibit A, and any Note delivered in substitution or exchange for any thereof, as supplemented from time to time in accordance with the terms hereof. "Officer" means, with respect to the Company, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller or the Secretary of the Company or, with respect to any certificates required at Closing, any Assistant Secretary of the Company. "Parent" means TransAmerican Natural Gas Corporation, a Texas corporation. "Permits" means authorizations, approvals, orders, licenses, certificates and permits of and from any regulatory or governmental officials, bodies and tribunals. "Permitted Liens" or "Permitted TARC 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 any of the TARC Entities in accordance with GAAP; (b) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairment, mineral interest owners, 6 11 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 god 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 Authority Financing; (e) Liens arising by operation of law in connection with judgements, 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 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 (as each such term is defined in the TEC Indenture); (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 Closing 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, (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 the 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 7 12 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 (as such terms are defined in the TEC Indenture); (p) Liens on cash deposits to secure reimbursement obligations with respect to letters of credit after the Delayed Coking Unit (as such terms are defined in the TEC Indenture) is completed; (q) Liens that secure Unrestricted Non-Recourse Debt; provided, however, that at the time of incurrence the aggregate fair market value of the assets securing such Lien (exclusive of the stock of the applicable Unrestricted Subsidiary) shall not exceed the amount of allowed Unrestricted Non-Recourse Debt of TARC; (r) Liens on the proceeds of any property subject to a Permitted TARC Lien or on deposit accounts containing any such proceeds; (s) Liens on the proceeds of any property that is not Collateral; (t) Liens imposed in connection with the Port Authority Financing; provided, that such Liens, if not Permitted Liens, do not extend to property other than the Port Facility Assets; (u) any extension, renewal or replacement of the Liens created pursuant to any of clauses (a) through (g), (i) through (t) or (w) provided that such Liens would have otherwise been permitted under such clauses, and provided further that the Liens permitted by this clause (u) do not secure any additional Debt or encumber any additional property; (v) Liens of the trustee under indenture and related collateral documents governing the terms of the Senior TARC Mortgage Notes and the Senior TARC Discount Notes; (w) Liens in favor of TEC or its assignee under the Security Documents (as defined in the TEC Indenture) and (x) Liens on tank storage facilities in the vicinity of the TARC refinery acquired after the date hereof. "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. "Port Authority Financing" means a financing transaction involving the following elements: (a) the transfer of TARC's interest in all or some of the following assets (together with the granting, at TARC's discretion, of any easements or servitudes reasonably necessary to the ownership and operation of such assets by the transferee) which are constructed or under construction in or near TARC'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 and (vi) tankage for liquefied petroleum gas (the "Port Facility Assets") to the Port of South Louisiana Commission or its affiliate (the "Tax-Exempt Issuer") and a leaseback of the Port Facility Assets to TARC or one of its Subsidiaries; (b) the issuance of tax-exempt bonds by the Tax-Exempt Issuer; and (c) the loan proceeds from such bonds to TARC or one of its Subsidiaries for the purpose of financing the completion of the Port Facility Assets. "Property" means any right or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. 8 13 "Public Equity Offering" means a public offering by the Company of Capital Stock (or debt securities convertible into Capital Stock of the Company) of the Company underwritten by a nationally recognized member of the National Association of Securities Dealers pursuant to an effective registration statement filed with the Securities and Exchange Commission pursuant to the Securities Act. "Purchaser" has the meaning specified in the preamble hereof. "Real Estate" means the property in Norco, St. Charles Parish, Louisiana, purchased by the Company from GATX pursuant to the Asset Purchase Agreement consisting of the Terminal Acreage and the Wetlands Acreage. "Record Date" means a Record Date specified in the Notes whether or not such Record Date is a Business Day. "Redemption Date" means, when used with respect to any Note to be redeemed, the date fixed for such redemption pursuant to this Agreement. "Redemption Price" when used with respect to any Note to be redeemed, means the redemption price for such redemption pursuant to this Agreement, which shall include, without duplication, in each case, accrued and unpaid interest to the Redemption Date. "S&P" means Standard & Poor's Ratings Service, a division of McGraw-Hill, Inc., and its successors. "SEC" means the Securities and Exchange Commission. "SEC Documents" means all reports, schedules, forms, statements and other documents filed by the Company and/or by TEC with the SEC since January 1, 1996. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Security Agreement" means the Security Agreement between the Company and Purchaser, substantially in the form attached as Exhibit B, as amended from time to time in accordance with the terms hereof. "Security Documents" means (i) the Security Agreement, (ii) the Disbursement Agreement, (iii) the Mortgages, and (iv) each other agreement relating to the pledge of assets to secure the Notes that may be entered into after the Closing Date pursuant to the terms of this 9 14 Agreement. "Solvent" means, with respect to any Person, that (i) the aggregate present fair saleable value of such Person's assets is in excess of the total amount of its probable liability on its existing debts as they become absolute and matured, (ii) such Person has not incurred debts beyond its foreseeable ability to pay such debts as they mature, and (iii) such Person has capital adequate to conduct the business it is presently engaged in or is about to engage in. "Stated Maturity", when used with respect to the Notes, means December 15, 2002. "Subordinated Debt" shall have the meaning ascribed thereto in the TEC Indenture and capitalized terms used therein not otherwise defined herein shall have the meaning ascribed thereto in the TEC Indenture. "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 Section 4.16 of the TEC Indenture, a joint venture an investment in which would constitute a Permitted Investment under clause (ix) of the definition thereof in the TEC Indenture or (ii) any Unrestricted Subsidiary of such Person. "Survey" means the survey of the Real Estate and also depicting the Docks and the Tanks, prepared by BFM Corporation, dated July 30, 1997, September 12, 1997, September 14, 1997, September 16, 1997 and September 17, 1997, received by the Company in accordance with the Asset Purchase Agreement. "TARC" means the Company. "TARC Entities" means the Company and its Subsidiaries. "Tanks" means approximately 84 above ground storage tanks with a shell capacity of approximately 5.5 million barrels located on the Real Estate. 10 15 "TEC" means TransAmerican Energy Corporation, a Delaware corporation. "TEC Indenture" means the Indenture dated as of June 13, 1997 between TEC and the TEC Indenture Trustee, pursuant to which TEC's 11.5% Senior Secured Notes due 2002 and 13% Senior Secured Discount Notes due 2002 were issued. "TEC Indenture Trustee" means Firstar Bank of Minnesota, N.A., as Trustee under the TEC Indenture, and its successors and assigns in such capacity. "TEC Note" means that certain promissory note dated July 31, 1997 evidencing loans from TEC to the Company. "Terminal Acreage" means approximately 240.8 acres within the fence line of the GATX terminal facility between the Mississippi River and U.S. Highway #61 and approximately 1.149 acres subject to a 50' L.C. Railroad right of way. "TNGC" means TransAmerican Natural Gas Corporation, a Texas corporation, together with its successors and assigns. "TransTexas" means TransTexas Gas Corporation, a Delaware corporation. "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 (as such term is defined in the TEC Indenture); (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 of Section 4.3 of the TEC Indenture 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. 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 in Section 4.11 of the TEC Indenture (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 11 16 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 this Agreement. "Voting Stock" means, with respect to any corporation, Capital Stock of such corporation having generally the right to vote in the election of directors of such corporation. "Wetlands Acreage" means approximately 463 acres of wetlands, the majority of which wetlands are on the north side of U.S. Highway #61. Section 1.02. Certain Terms. All accounting terms used in this Agreement shall be applied on a consolidated basis, unless otherwise specifically indicated herein. Any accounting terms not specifically defined herein shall have the meanings customarily given them in accordance with GAAP. Terms used herein that are defined in the Uniform Commercial Code as in effect in the State of New York, unless defined herein, shall have the respective meanings specified in that statute. Section 1.03. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it and a capitalized term not otherwise defined herein has the meaning given to such term in the TEC Indenture unless the context requires otherwise; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and words in the plural include the singular; (e) provisions apply to successive events and transactions; (f) "herein", "hereof" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; and (g) references to Sections or Articles means reference to such Section or Article in this Agreement, unless stated otherwise. ARTICLE II SALE AND PURCHASE OF NOTES Section 2.01. Authorization of Notes. (a) The Company has duly authorized the issue, sale and delivery of the Notes in an aggregate principal amount of Thirty Six Million Dollars ($36,000,000), to be dated the Closing Date, to bear interest from such date on the unpaid principal amount thereof at a rate of thirteen percent (13%) per annum, calculated on the basis of actual days elapsed in a 360 day year assuming a 12-month year of 30-day months. (b) The Company shall pay interest on December 15 and June 15 of each year, in arrears, commencing June 15, 1998 and on the Maturity Date, in each case subject to Section 2.06. 12 17 (c) If all or a portion of the principal amount of any Note, interest payable thereon or any fees payable hereunder shall not be paid when due whether at the stated maturity, by acceleration or otherwise, such overdue amount shall bear interest at a rate per annum equal to the then applicable rate on principal plus Two Percent (2%), in each case from the date of such nonpayment until such amount is paid in full (as well as before judgment). Section 2.02. Sale and Purchase of Notes. Subject to the applicable terms and conditions set forth in this Agreement, on the Closing Date, the Company shall issue and sell to Purchaser, and Purchaser shall purchase from the Company, a Note in the principal amount of Thirty Six Million Dollars ($36,000,000) at a purchase price equal to One Hundred Percent (100%) of the principal amount thereof. Section 2.03. Closing; Funding. (a) Subject to the satisfaction or waiver of the conditions to closing set forth in Article V, the execution and delivery of this Agreement and the Security Documents shall take place at the offices of Brown & Wood LLP, 56th Floor, One World Trade Center, New York, New York 10048, on December 10, 1997, or such other time and place as the parties shall agree (herein called the "Closing Date"). (b) Subject to and in accordance with Section 2.02, and subject to the satisfaction or waiver of the conditions to funding set forth in Article V, on the Closing Date the Company shall deliver to Purchaser a Note or Notes registered in the name of Purchaser or its nominee, duly executed and dated the Closing Date, in the aggregate principal amount of the Notes purchased by Purchaser hereunder, in such denomination as Purchaser may specify (not to exceed the aggregate principal amount) by timely notice to the Company, but in no event later than one Business Day prior to the Closing Date (or, in the absence of such notice, one Note registered in its name in such aggregate principal amount), against Purchaser's delivery to the Company of immediately available funds to an account specified to Purchaser by the Company not later than the Closing Date in the amount of the aggregate purchase price of the Notes to be sold to Purchaser on the Closing Date. Section 2.04. Payments. All payments by the Company hereunder of the principal amount of the Notes, interest thereon, fees, expenses and other amounts due hereunder shall be made in Dollars by wire transfer or other immediately available funds, without deduction, set off or counterclaim, to each Holder in accordance with the payment instructions on Appendix A attached hereto (or in accordance with alternate payment instructions delivered by such Holder to the Company at least ten Business Days but no more than twenty Business Days prior to the relevant payment date), not later than 1:00 p.m. (New York City time) on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Deposit by the Company into the Disbursement 13 18 Account of any amount required to be paid hereunder shall constitute payment of such amount hereunder. Section 2.05. Fees. In addition to all other fees and other amounts payable or paid by the Company pursuant to this Agreement, the Security Documents or otherwise, but subject to the Interest Rate Limitation, on the Closing Date, the Company shall pay to Purchaser, as a funding fee, an aggregate amount equal to Three Hundred Sixty Thousand Dollars ($360,000). Section 2.06. Interest Rate Limitation. Notwithstanding any provision of this Agreement, the Notes or the Security Documents to the contrary, it is the parties' intent that in no event shall the aggregate amount of all interest, fees under Section 2.05, compounded interest, and default interest actually paid by the Company exceed the amount of interest on principal computed (as set forth below) at the highest rate of interest permitted by law which a court of competent jurisdiction shall deem applicable hereto. If, under any circumstances whatsoever, in fulfilling the provisions of this Agreement, the Notes or the Security Documents, the Company actually pays an amount of interest, chargeable on the total aggregate principal obligations of the Company under all Notes (as said rate is calculated over a period of time that is the longer of (i) the time from the date of this Agreement through the Maturity Date or (ii) the entire period of time that any principal is outstanding on any of said Notes), which amount of interest exceeds interest calculated at the maximum lawful interest rate on said principal chargeable over said period of time, then such excess interest actually paid by the Company shall be applied, first, to the pro rata payment of principal outstanding on the Notes; second, after all principal is repaid, to the payment of the Holders' out-of-pocket costs, expenses, and professional fees which are owed by the Company to the Holders under this Agreement or the Security Documents; and, third, after all principal, costs, expenses, and professional fees owed by the Company to the Holders are repaid, the excess (if any) shall be refunded to the Company. ARTICLE III PAYMENT AND REDEMPTION OF NOTES Section 3.01. Maturity Date. The unpaid principal balance of each of the Notes shall mature and shall be paid in full on the Maturity Date, together with all interest accrued thereon to such date and all unpaid fees, expenses and other amounts due and owing under the provisions of this Agreement, the Notes and the Security Documents. All payments of the Notes shall be allocated pro rata to each Holder and applied first to the amount of any unpaid fees, second to any accrued and unpaid interest, and third to the outstanding principal amount of the Notes until paid in full. Section 3.02. Redemption. (a) The Company may at its election, with the net proceeds of any Public Equity 14 19 Offering, at any time on or after the date the Notes are issued and before December 15, 2000, redeem up to 35% of the aggregate principal amount of the Notes in cash at a redemption price of 113% of the principal amount so redeemed, together with accrued and unpaid interest, if any on such principal amount to the Redemption Date. (b) The Notes may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on and after December 15, 2000, to and including December 15, 2001 at 105% of the principal amount and from and after December 15, 2001 to Maturity at 100% of the principal amount, in each case together with accrued but unpaid interest on the principal amount being redeemed to the date of such redemption, and unpaid fees and other amounts owing pursuant to the Agreement, the Notes and the Security Documents, but without penalty. (c) The Company may, at its election, with the proceeds of any Port Authority Financing, redeem all of the then outstanding Notes at a redemption price of 108% of the principal amount so redeemed, together with accrued but unpaid interest thereon to the date of such redemption and (ii) the Company shall, at any time prior to 20 Business Days after the consummation of any Port Authority Financing, if the Company has not elected to redeem all of the outstanding Notes pursuant to clause (i) above, make an offer to purchase $4,000,000 in principal amount of the Notes at a redemption price equal to 101% of the principal amount, together with accrued but unpaid interest thereon to the date of such redemption; provided, however, that the Company shall be required to make such an offer to purchase only if the Company is requesting therewith, pursuant to Section 11.14(c), a release or subordination of the Lien created by the Mortgage and Security Documents on Dock No. 1 (designated as Dock No. 2 in the Survey); provided, further, that the Company may make such offer to purchase prior to, and may make such offer to purchase contingent upon, the consummation of any Port Authority Financing. (d) At least 10 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail, postage prepaid, to each Holder whose Notes are to be redeemed. 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. Each notice for redemption shall identify the Notes to be redeemed and shall state the following: (i) the Redemption Date; (ii) the Redemption Price, including the amount of accrued and unpaid interest to be paid upon such redemption; (iii) that Notes called for redemption (or, with respect to an offer to purchase pursuant to Section 3.02(c)(ii), Notes tendered in connection with such offer 15 20 to purchase) must be surrendered to the Company at the address specified in such notice to collect the Redemption Price; (iv) that interest on Notes called for redemption (or, with respect to an offer to purchase under Section 3.02(c)(ii), Notes tendered in connection with such offer to purchase) ceases to accrue on and after the Redemption Date and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, including accrued and unpaid interest, upon surrender to the Paying Agent of the Notes called for redemption and to be redeemed (or, with respect to an offer to purchase under Section 3.02(c)(ii), Notes tendered in connection with such offer to purchase); (v) if any Note is being redeemed in part, the portion of the principal amount, equal to $1,000 or any integral multiple thereof, of such Note that will not be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued; (vi) if less than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of such Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; (vii) that the notice is being sent pursuant to this Section 3.02(d) and pursuant to the redemption provisions of Paragraph 5 of the Notes. (e) Once notice of redemption is mailed in accordance with Section 3.02(d) and upon satisfaction or waiver of any conditions precedent to the Company's obligation to effect such redemption contained in the related notice of redemption, Notes called for redemption (or, with respect to an offer to purchase under Section 3.02(c)(ii), Notes tendered in connection with such offer to purchase) become due and payable on the Redemption Date and at the Redemption Price, including accrued and unpaid interest. Upon surrender to the Company, such Notes called for redemption (or, with respect to an offer to purchase under Section 3.02(c)(ii), Notes tendered in connection with such offer to purchase) shall be paid at the Redemption Price, including interest, if any, accrued and unpaid on the Redemption Date; provided that if the Redemption Date is after a regular Record Date and on or prior to the Interest Payment Date, the accrued interest through the date of redemption shall be payable to the Holder of the redeemed Notes registered on the relevant Record Date; and provided, further, that if a Redemption Date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. 16 21 (f) Upon compliance by the Company with the provisions of this Section 3.02 and upon satisfaction or waiver of any conditions precedent to the Company's obligation to effect such redemption contained in the related notice of redemption, interest on the Notes called for redemption (or, with respect to an offer to purchase under Section 3.02(c)(ii), Notes tendered in connection with such offer to purchase) will cease to accrue. On and after the Redemption Date, regardless of whether such Notes are presented for payment. Notwithstanding anything herein to the contrary, if any Note surrendered for redemption in the manner provided in the Notes shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall continue to accrue and be paid from the Redemption Date until such payment is made on the unpaid principal and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 2.01 and the Note. (g) Upon surrender of a Note that is to be redeemed in part, the Company shall execute and deliver to the Holder, without service charge, a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.03. Repurchase of Notes Upon Change of Control. (a) In the event that a Change of Control occurs, each Holder of Notes shall have the right, at such Holder's option, to require the Company to repurchase all or any part of such Holder's Notes (provided that the principal amount of such Notes at maturity must be $1,000 or an integral multiple thereof) on the date that is no later than 60 Business Days after the occurrence of a Change of Control (the "Change of Control Payment Date"), at a cash purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof, plus accrued and unpaid interest, to and including the Change of Control Payment Date. (b) Within ten (10) Business Days after each date upon which the Company knows of the occurrence of a Change of Control, the Company shall so notify each Holder, and within twenty (20) Business Days after the Company knows of such occurrence, the Company shall make an irrevocable unconditional offer (a "Change of Control Offer") to all Holders to purchase for cash all of the Notes pursuant to Section 3.03(c) at the Change of Control Purchase Price. (c) Notice of a Change of Control Offer shall be sent, at least 20 Business Days prior to the Final Change of Control Put Date (as defined below), by first class mail, by the Company to each Holder at its registered address. The notice to the Holders shall contain all instructions and materials required by applicable law and shall contain or make available to Holders other information material to such Holders' decision to tender Notes pursuant to the Change of Control Offer. The notice, which shall govern the terms of the offer, shall state: 17 22 (i) that the Change of Control Offer is being made pursuant to this Section 3.03 and that all Notes or portions thereof tendered will be accepted for payment; (ii) the Change of Control Purchase Price (including the amount of accrued and unpaid interest), the Change of Control Payment Date and the Final Change of Control Put Date (as defined below); (iii) that any Note, or portion thereof, not tendered or accepted for payment will continue to accrue interest; (iv) that any Note, or portion thereof, accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have a Note or portion thereof purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date (the "Final Change of Control Put Date"); (vi) that Holders will be entitled to withdraw their election, in whole or in part, if the Company receives, prior to the close of business on the Final Change of Control Put Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder is withdrawing and a statement that such Holder is withdrawing his election to have such principal amount of Notes purchased; and (vii) a brief description of the events resulting in such Change of Control. (d) Any such Change of Control Offer shall comply with all applicable provisions of Federal and state laws, including those regulating tender offers, if applicable, and any provisions of this Agreement which conflict with such laws shall be deemed to be superseded by the provisions of such laws. On or before the Change of Control Payment Date, the Company shall accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer prior to the close of business on the Final Change of Control Put Date. The Company shall on the Change of Control Payment Date mail to the Holders of Notes so accepted payment in an amount equal to the Change of Control Purchase Price (together with accrued and unpaid interest). The Company shall promptly cancel all Notes accepted thereby pursuant to the Change of Control Offer and delivered to it, and authenticate and mail or deliver to the Holders of Notes so accepted a new Note 18 23 equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. Section 3.04. Pro Rata Redemptions/Repurchases. If pursuant to this Article III on account of any redemption or offer to repurchase, less than all the Notes then outstanding are to be redeemed or repurchased, as the case may be, the Notes shall be redeemed or repurchased, as the case may be, pro rata or by lot amongst the Holders in such manner as complies with any applicable legal requirements. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties. The Company represents and warrants to Purchaser as follows: (a) The Company is a corporation duly incorporated, and validly existing and in good standing under the laws of the State of Texas, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the SEC Documents, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature or location of its properties (owned or leased) or the conduct of its business requires such registration or qualification, except where the failure to be so registered or qualified would reasonably be expected to have a Material Adverse Effect. (b) Each of the Company and its Subsidiaries have all necessary material Permits to own or lease its properties and to conduct its business as described in the SEC Documents, except as otherwise described therein, and none of the Company or its subsidiaries has received any notice or threat of proceedings relating to the revocation or modification of any such Permits; each of the Company and its subsidiaries has fulfilled and performed in all material respects all of its current obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time, or both, would allow revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject, in each case, to such qualification as may be set forth in an SEC Document; and each of the Company and its subsidiaries is in compliance with all applicable laws, rules, regulations, orders and consents, except where the failure to comply would reasonably be expected to have a Material Adverse Effect. (c) The Company has all requisite power and authority to enter into this Agreement, the Notes and the Security Documents, to carry out the provisions and conditions hereof and thereof, and to issue and deliver the Notes to Purchaser as provided herein. 19 24 (d) The execution and delivery and performance by the Company of this Agreement, the Notes and the Security Documents, and the performance of its obligations thereunder, have been duly authorized by the Company and, upon execution and delivery by the Company (assuming the due authorization, execution and delivery thereof by the other parties thereto), each of this Agreement, the Notes and the Security Documents will constitute a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to (A) any applicable bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditors' rights and remedies generally and (B) general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law, and the Notes are entitled to the benefits of the Agreement. (e) The authorized Capital Stock of the Company consists of 100,000,000 shares of Common Stock, $.01 par value, of which 30,000,000 shares are issued and outstanding as of the close of business on Closing Date, and all of the issued and outstanding shares of Capital Stock of the Company are validly issued, fully paid and nonassessable and are owned of record and beneficially by TEC. The Parent owns 100% of the outstanding capital stock of TEC. As of the Closing Date there are no securities of the Company outstanding that are convertible into or exchangeable for any shares of Capital Stock of the Company, nor are there outstanding any rights to subscribe for or purchase from the Company, or any options for the purchase from the Company of, or any agreements (contingent or otherwise) providing for the issuance by the Company of, any shares of Capital Stock of the Company or any securities convertible into or exchangeable for any such shares, in each case other than the outstanding warrants to purchase common stock of the Company. (f) The Company is not (i) an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and is not subject to registration under such act, (ii) a "public utility holding" company under the Public Utility Holding Company Act of 1935 and is not subject to regulation as a public utility holding company under such act, (iii) subject to regulation under the Federal Power Act or (iv) subject to regulation under any other federal or state statute, rule or regulation restricting its ability to incur indebtedness for borrowed money. (g) The Company is not in violation of its charter or bylaws or similar organizational documents or of any law, ordinance, administrative or governmental rule or regulation applicable to it, or of any franchise, license, permit, judgment or any decree of any court or governmental agency or body having jurisdiction over it, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease, bond, debenture, bank loan, credit agreement or other agreement instrument or evidence of indebtedness to which it is a party or by which it is or may be bound, or to which any of its property or assets is subject, which violation or default would reasonably be expected to have a Material Adverse Effect. 20 25 (h) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company, or to which any of its property is subject, except as disclosed in the SEC Documents, or as otherwise disclosed to Purchaser, that, if adversely determined, would reasonably be expected to have a Material Adverse Effect. (i) Since January 31, 1997, there has not been any change or development with respect to the condition (financial or otherwise) or business, properties, net worth, results of operations or prospects of the Company whether or not arising in the ordinary course of business that would reasonably be likely to have a Material Adverse Effect. (j) Except as disclosed in any SEC Document or as otherwise disclosed to Purchaser, there has not been any material change in the capital stock or other equity, or material increase in the short-term debt or long-term debt, of the Company or any development involving or which may reasonably be expected to have a Material Adverse Effect. (k) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated hereby, except such as will have been obtained at or before Closing. (l) Except as disclosed in any SEC Document, or as otherwise disclosed to Purchaser, the Company nor any of its subsidiaries is involved in any material labor dispute nor, to its knowledge, is any such dispute threatened. (m) The Company has filed all federal, state and local tax returns that are or were required to be filed or has obtained extensions thereof and has paid all taxes shown on such returns and all assessments received by it, to the extent that the same have become due, except for such assessments which the Company disputes in good faith and has adequately reserved for. (n) The issuance and sale of the Notes, the execution and delivery of this Agreement and the Security Documents and the consummation of any other of the transactions herein or therein contemplated, and the fulfillment of the terms hereof or thereof, will not conflict with, result in a breach of, or constitute a default under, the terms of any material indenture or other agreement or instrument to which the Company is a party or bound or any law, order, statute, regulation, consent or memorandum of understanding applicable to the Company of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company (which default would have a Material Adverse Effect), or the charter or bylaws of the Company. (o) No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System of the United States (12 CFR 207), or 21 26 for the purpose of buying or carrying on trading in any securities under such circumstances as to involve any of the Parent, the Company or of their Subsidiaries in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). None of the Parent, the Company, any of their Subsidiaries or any agent acting on behalf of the Parent, the Company or any of their Subsidiaries has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation X, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. As used in this Section, the term "purpose of buying or carrying" has the meaning assigned thereto in the aforesaid Regulation G. (p) As supplemented or modified as set forth on Schedule 4.01(p) hereto the representations and warranties of the Company set forth in Section 4.18 of the Mortgage are true and correct in all respects. (q) Each of Parent and the Company is, and immediately after giving effect to the sale of the Notes, the Acquisition and the other transactions and agreements contemplated by this Agreement, will be, Solvent. (r) At the Closing Date, the chief executive office of the Company is at the address set forth on the signature page hereof. At least 30 days prior to the relocation of such chief executive office, the Company shall provide written notice to the Holders setting forth the new address of such chief executive office. (s) On and after the Closing Date, each of the Security Documents creates, as security for the Notes, a valid and enforceable perfected security interest in and Lien on all of the Collateral subject thereto, superior to and prior to the rights of all third Persons and subject to no other Liens other than Permitted Liens. No filings or recordings are required in order to perfect the security interests created under any Security Document which shall not have been made, or for which satisfactory arrangements have not been made, upon or prior to the execution and delivery thereof. (t) Assuming the accuracy of Purchaser's representations contained in Section 11.04(b), the offer and sale of the Notes will be exempt from the registration requirements of the Securities Act. Section 4.02. Certificates. Any certificate signed by any officer of the Company and delivered to the Holders or to counsel for the Holders pursuant to the terms of this Agreement shall be deemed a representation and warranty by the Company to each Holder as to the matters covered thereby. 22 27 ARTICLE V CONDITIONS TO CLOSING Section 5.01. Conditions Precedent. Purchaser's obligation to execute and deliver this Agreement and the Security Documents described below and to purchase the Notes on the Closing Date shall be subject to the satisfaction, on or before the Closing Date, of the following conditions: (a) Transaction Documents. Purchaser shall have received, except for the Note to be issued thereto, a counterpart of each of the following, each of which shall be satisfactory to Purchaser in form and substance in all respects: (i) this Agreement, duly executed and delivered by the Company; (ii) each Note to be purchased by Purchaser, duly executed by the Company; (iii) the Security Agreement, duly executed by the Company; (iv) duly executed financing statements in proper form for filing under the Uniform Commercial Code in all such jurisdictions as Purchaser may deem necessary or desirable in order to perfect and protect the Liens created by the Security Agreement covering the Collateral described in the Security Agreement; (v) one or more mortgages in the form of Exhibit D attached hereto (as amended from time to time in accordance with their terms, the "Mortgages"), duly executed by the Company and dated the Closing Date, all in proper form for filing in the appropriate offices within the State of Louisiana as Purchaser may deem necessary or desirable in order to perfect and protect the Liens created by the Mortgages, together with duly executed financing statements in proper form for filing under the Uniform Commercial Code as in effect in the State of Louisiana; (vi) such consents, approvals and authorizations of, and declarations, registrations and filings with, any governmental entities, and such consents, waivers, amendments, estoppel letters, subordination and nondisturbance agreements, and other agreements and confirmations of bailees, lessors of real and personal Property owned or used by the Company and other nongovernmental third parties, as Purchaser may deem necessary or desirable in connection with the use, occupancy or operation of the real Properties leased by the Company or otherwise in order to protect the rights and interests of Purchaser in the Collateral; 23 28 (vii) the Disbursement Agreement, duly executed by the Company and the Disbursement Agent; and (viii) the Environmental Indemnity Agreement, duly executed and delivered by Parent. (b) Corporate Documents. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to Purchaser, and Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may request, including: (i) certificates dated as of a recent date as to the good standing and payment of franchise and similar taxes of the Parent and the Company in each jurisdiction where any of such Persons is incorporated or formed or is authorized to do business as a foreign corporation (except when failure to maintain such authorization to do business would not result in a Material Adverse Effect); (ii) certified copies of the certificate or articles of incorporation of the Parent and the Company, with all amendments thereto; (iii) certified copies of the by-laws of the Parent and the Company, with all amendments thereto; (iv) certified copies of Board Resolutions of the Parent and the Company authorizing the execution, delivery and performance of this Agreement, the Notes, the Environmental Indemnity Agreement and the Security Documents to which Parent and/or the Company is a party; and (v) certificates as to the incumbency and signatures of each of the officers of Parent and the Company who shall execute this Agreement or any Note or Security Document on behalf of such respective party. (c) TEC Indenture. The Company shall have delivered to Purchaser a certificate of an Officer thereof certifying that (i) attached thereto is a complete, correct and accurate copy of the TEC Indenture, together with all attachments, exhibits, annexes and schedules thereto; (ii) the TEC Indenture in the form of such copy is in full force and effect as of the Closing Date and no Default or Event of Default thereunder shall have occurred and then be continuing; and (iii) there are no outstanding waivers, amendments, modifications or supplements to the TEC Indenture that are not attached to, or otherwise described in, such certificate. 24 29 (d) Opinion of Counsel. Purchaser shall have received from each of (i) Gardere & Wynne, L.L.P., and (ii) Campbell, McCranie, Sistrunk, Angelino & Hardy, favorable legal opinions, dated the Closing Date and addressed to Purchaser, in form and substance satisfactory to Purchaser. (e) Solvency. On the Closing Date, Purchaser shall have received from the chief financial officer or other qualified officer of each of Parent and the Company respectively, that the Parent or the Company, as applicable, and immediately after giving effect to the sale of the Note and the other transactions contemplated by this Agreement, will be, Solvent. (f) Appraisal. An appraisal reasonably acceptable to Purchaser setting forth the value of the Collateral. (g) Representations and Warranties True. The representations and warranties contained in Article IV and elsewhere in this Agreement and the representations and warranties contained in the Security Documents shall be true on and as of the Closing Date with the same effect as if such representations and warranties had been made on and as of the Closing Date. The Company shall have performed all agreements on its part required to be performed under this Agreement prior to the Closing Date; there shall exist on the Closing Date no Default or Event of Default. (h) Absence of Litigation, Orders. There shall not be pending or threatened any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or its Properties which seeks to enjoin or restrain any of the transactions contemplated herein or hereby. (i) Fees and Expenses. Purchaser shall have received all fees due and payable in accordance with Section 2.05 hereof. The reasonable fees and disbursements incurred by counsel for Purchaser, and the environmental consultant of Purchaser in connection with the preparation of this Agreement and the Security Documents and the transactions contemplated hereby and thereby shall be paid in full by the Company or the Parent on the Closing Date. ARTICLE VI INFORMATION Section 6.01. Information. The Company will furnish to the Holders, so long as any of the Notes shall remain unpaid, in duplicate: The Company shall deliver to the Holders, within 15 days after it files the same with the 25 30 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. If the Company is no longer subject to the filing and reporting requirements of the SEC, the Company shall deliver 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 such reporting requirements. ARTICLE VII INSPECTION OF PROPERTIES AND BOOKS THIS SECTION INTENTIONALLY LEFT BLANK ARTICLE VIII COVENANTS Section 8.01. Use of Proceeds. The Company shall use the net proceeds derived from the sale of the Notes solely for repaying a portion of its obligations under the TEC Note. Section 8.02. Filing of Security Documents. The Company shall cause to be filed with the proper government authorities all Security Documents as contemplated by such documents promptly, and in no event later than three (3) Business Days from the Closing Date. Section 8.03. Further Assurances. The Company will from time to time execute any and all further documents, financing statements, agreements, mortgages, deeds of trust, and instruments, and take all further actions (including filing Uniform Commercial Code financing statements), which may be required under applicable law, or which the Holders may reasonably request, in order to effectuate the transactions contemplated by this Agreement and in order to grant, preserve, protect and perfect the validity and priority of the Liens and security interests created by the Security Documents. Section 8.04. Incorporation by Reference. (a) Until all of the obligations of the Company with respect to the Notes are paid in full, the Company shall perform, and shall cause each of its Subsidiaries to perform, to the extent applicable thereto, each covenant set forth at (i) Sections 4.3 through and including 4.6, 4.9 through 26 31 and including 4.15 and 4.18 through and including 4.20 of the TEC Indenture and (ii) Article V of the TEC Indenture as if fully set forth herein, and each such covenant, together with each capitalized term used therein, is hereby incorporated herein by reference thereto (such covenants and capitalized terms are herein collectively referred to as the "TEC Indenture Covenants") provided, however, that if any capitalized term used in the TEC Indenture Covenants is defined herein, the definition herein shall control unless the context otherwise requires. (b) Upon the effective date of any waiver, amendment, modification or supplement of any of the TEC Indenture Covenants effected pursuant the terms and conditions of the TEC Indenture, each and every such waiver, amendment, modification or supplement shall be effective to the TEC Indenture Covenant applicable thereto without further action by the Company or any Holder. (c) In the event that for whatever reason the TEC Indenture shall be terminated or is no longer in full force and effect, then each of the TEC Indenture Covenants shall continue to be applicable hereto as incorporated herein in the form and substance of each such TEC Indenture Covenant on the Business Day immediately prior to the date of such termination or cessation, and shall remain in full force and effect with respect hereto until waived, amended, modified or supplemented in accordance with the terms hereof. ARTICLE IX EVENTS OF DEFAULT Section 9.01. Events of Default; Remedies. If any of the following events (herein called "Events of Default") shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or by operation of law or otherwise): (a) the Company shall default in the due and punctual payment or prepayment of all or any part of the principal of any Note when and as the same shall become due and payable, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; (b) the Company shall default in the due and punctual payment or prepayment of (i) any interest on any Note or (ii) any other amounts payable hereunder or under any Security Document (other than those amounts referred to in Section 9.01(a)), when and as such interest or other amounts shall become due and payable, and such default shall continue for a period of five Business Days, which period shall commence to run after written notice to the Company from the Holders having at least 25% of the outstanding principal amount of all Notes with respect to amounts covered in clause (ii); 27 32 (c) the Company shall default in the performance or observance of any of the covenants, agreements or conditions set forth in any of Sections 4.3, 4.11, 4.14, or 5.1 of the TEC Indenture, each as incorporated herein by reference (such reference to incorporate any grace period applicable thereto under the TEC Indenture) thereto pursuant to Section 8.04, and otherwise subject to the provisions thereof; (d) the Company shall default in the performance or observance of any of the covenants, agreements or conditions contained in this Agreement or otherwise incorporated herein by reference thereto, or any of the Security Documents (other than those covenants referred to or described in Section 9.01(a), 9.01(b) and 9.01(c)), and such default shall continue for a period of thirty (30) days, after written notice thereof to the Company from the Holders having at least 25% of the outstanding principal amount of all Notes. (e) the Company shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its Property, (ii) be generally unable to pay its indebtedness as such indebtedness becomes due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code, (v) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vi) fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, (vii) admit in writing its inability to pay its debts generally as such debts become due, (viii) take any action under the laws of its jurisdiction of organization analogous to any of the foregoing, or (ix) take any requisite action for the purpose of effecting any of the foregoing; (f) a proceeding or case shall be commenced, without the application or consent of the Company in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up of the Company or composition or readjustment of the indebtedness of any of them, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, or of all or any substantial part of the assets of any of them, or (iii) similar relief in respect of the Company under any law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of 60 days; or an order for relief shall be entered in an involuntary case under the Bankruptcy Code, against the Company, or action under the laws of the jurisdiction of organization of any of the Company analogous to any of the foregoing shall be taken with respect to any of the Company and shall continue undismissed, or unstayed and in effect, for a period of 60 days; (g) final judgment for the payment of money shall be rendered by a court of competent jurisdiction against the Company, and the Company shall not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof, within twenty days from the date of entry thereof and within said period of twenty days, or such longer 28 33 period during which execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal, and such judgment together with all other such judgments shall exceed in the aggregate One Hundred Thousand Dollars ($100,000) (excluding all or any portion of such judgment or judgments covered by insurance maintained with one or more financially sound insurers that are obligated to pay such portion; provided, however, that the Company shall have provided an officer's certificate to the Holders not later than three Business Days after the date the related judgment is rendered certifying that the Company has filed, or expects to file promptly, a claim or claims with such insurer or insurers and has no reason to believe that such insurer or insurers will not pay the claims in respect thereof in full); (h) (i) any representation or warranty made by or on behalf of the Company in this Agreement or the Security Documents, or in any financial statement, certificate or other instrument or document now or hereafter delivered pursuant to or in connection with any provision of this Agreement or the Security Documents that repeats such representations or warranties, shall prove to be breached in any material respect or false or incorrect in any material respect on the date as of which made (provided, however, that with respect to the representations made in Section 4.18 of the Mortgage, such representation shall be deemed to include a qualification for information previously provided in writing to the Purchaser) or (ii) any representation, warranty or statement made by or on behalf of the Company in any financial statement, certificate or other instrument or document now or hereafter delivered pursuant to or in connection with any provision of this Agreement or the Security Documents, shall prove to be false or incorrect in any material respect or breached in any material respect on the date as of which made; (i) any provision of any of this Agreement, the Notes or the Security Documents shall, for any reason, not be or shall cease to be in full force and effect, or not be, or be asserted in writing by the Company not to be, valid, binding and enforceable against any Person purported to be bound by it, if the failure of such provision to be in full force and effect or to be valid, binding and enforceable could be reasonably likely to have a Material Adverse Effect; (j) any of the Security Documents shall for any reason cease to be in full force and effect, or shall cease to give the Holders for their ratable benefit the Liens, rights, powers and privileges purported to be created thereby including but not limited to, a perfected security interest in, and Lien on, all of the Collateral in accordance with the terms thereof, if such cessation would reasonably be expected to have a Material Adverse Effect; (k) any Event of Default shall have occurred and be continuing under the TEC Indenture which has not been waived by the necessary parties thereto; then (i) upon the occurrence of any Event of Default described in subsection (e) or (f), the unpaid principal amount of all Notes, together with the interest accrued thereon and all unpaid fees, 29 34 expenses and other amounts owing under the provisions of this Agreement, the Notes and the Security Documents, shall automatically become immediately due and payable, all without presentment, demand, notice, declaration, protest or other requirements of any kind, all of which are hereby expressly waived, or (ii) upon the occurrence and during the continuance of any other Event of Default, the Holders of more than twenty-five percent (25%) in outstanding principal amount of the Notes may, by written notice to the Company, declare the unpaid principal amount of all Notes to be, and the same shall forthwith become, immediately due and payable, together with the interest accrued thereon and all unpaid fees, expenses and other amounts owing under the provisions of this Agreement, the Notes and the Security Documents, all without presentment, demand, notice, protest or other requirements of any kind, all of which are hereby expressly waived. Section 9.02. Remedies. If any Event of Default shall have occurred and be continuing, the Holders having at least 25% of the outstanding principal amount of all Notes may proceed to protect and enforce their rights, either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement, or in the Security Documents, or in any out of court work out or restructuring, or in any reorganization or liquidation case or proceeding that relates to or affects the Company, the Parent or any Collateral, and such Holders may proceed to enforce the performance of all obligations and payment of all sums due upon such Notes, or under this Agreement or any Security Document, and such further amounts as shall be sufficient to cover the reasonable costs and expenses of collection (including all reasonable fees and disbursements of counsel, accountants, appraisers, investment bankers, and all other professionals, experts, and advisors of the Holders), or to enforce any other legal or equitable right of the Holders. Section 9.03. Remedies Cumulative. No remedy conferred herein or in the Security Documents upon the Holders is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 9.04. Remedies Not Waived. No course of dealing between Parent or the Company and the Holders, and no delay or failure in exercising any rights hereunder or under the Notes or the Security Documents in respect thereof, shall operate as a waiver of any of the rights of the Holders. ARTICLE X THE NOTES Section 10.01. Registration, Exchange, and Transfer of Notes. The Company will keep at its principal executive office a register, in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), the Company will provide for the registration and transfer of Notes. Whenever any Note or Notes shall be surrendered either at the 30 35 principal executive office of the Company, or at the place of payment named in the Note, for transfer or exchange, accompanied (if so required by the Company) by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the Holder thereof or by such Holder's attorney duly authorized in writing, the Company will execute and deliver in exchange therefor a new Note or Notes in such denominations as may be requested by such Holder, of like tenor and in the same aggregate unpaid principal amount as the aggregate unpaid principal amount of the Note or Notes so surrendered. Any Note issued in exchange for any other Note or upon transfer thereof shall carry the rights to unpaid interest, unpaid fees and other amounts owing pursuant to this Agreement, the Notes and the Security Documents, and interest to accrue which were carried by the Note so exchanged or transferred, and neither gain nor loss of interest shall result from any such transfer or exchange. Any transfer tax or governmental charge relating to such transaction shall be paid by the Holder requesting the exchange. The Company and any of its agents may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of the principal of, prepayment charge (if any) and interest and other amounts on such Note and for all other purposes whatsoever, whether or not such Note be overdue. Section 10.02. Lost, Stolen, Damaged and Destroyed Notes. At the request of any Holder, the Company will issue and deliver at its expense, in replacement of any Note or Notes lost, stolen, damaged or destroyed, upon surrender thereof, if mutilated, a new Note or Notes in the same aggregate unpaid principal amount, and otherwise of the same tenor, as the Note or Notes so lost, stolen, damaged or destroyed, duly executed by the Company. The Company may condition the replacement of a Note or Notes reported by the Holder thereof as lost, stolen, damaged or destroyed, upon the receipt from such Holder of an indemnity or security reasonably satisfactory to the Company. ARTICLE XI MISCELLANEOUS Section 11.01. Amendment and Waiver. No amendment or waiver of any provision of this Agreement or the Notes or any Security Document or any consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Holders representing more than fifty percent (50%) of the aggregate principal amount of the Notes then outstanding. Without the specific prior written consent of the Holders representing more that sixty-six Percent (66%) of the aggregate principal amount of the Notes then outstanding, no such amendment, waiver or consent shall release or subordinate any of the Liens created by the Security Documents. No such amendment, waiver or consent which purports to (i) reduce the principal of, or the rate of interest on, any Note, (ii) extend the time for payment of all or any portion of the principal of or interest on any Note or (iii) amend, modify or waive any provision of this Section 11.01 shall be effective with respect to any Note unless the Holder of such Note has given its specific 31 36 prior written consent thereto. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Neither any failure nor any delay on the part of the Holders in exercising any right, power or privilege hereunder or under the Notes or any of the Security Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Except as otherwise provided herein or in the Notes or any Security Document, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in the same, similar or other circumstances. Section 11.02. Expenses and Taxes. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to pay, indemnify and save the Holders harmless against any and all liabilities for the payment of (i) all reasonable out-of-pocket expenses arising in connection with the preparation, negotiation, execution and delivery of this Agreement, the Notes, the Security Documents and the other instruments and documents hereby and thereby contemplated and the closing of the transactions contemplated hereby, (ii) all such expenses incurred with respect to the enforcement of any provision of any such agreement or instrument, (iii) all reasonable expenses reasonably incurred in connection with the reproduction of such agreements and instruments and all stamp and other similar taxes (together in each case with interest and penalties, if any) which may be payable in respect of the execution and delivery of such agreement or instruments; provided, however, that the Company shall not be responsible for taxes arising out of any assignment or transfer of the Notes, (iv) all reasonable fees, taxes and other charges incurred in connection with the filing or recording of any Security Documents (at or subsequent to the Closing Date) and in connection with any Lien, tax and judgment searches (including searches undertaken subsequent to the Closing Date), including appraisal, survey and other title costs, (v) the reasonable fees and disbursements of any special or local counsel in connection with the preparation of such agreements and instruments and the transactions hereby and thereby contemplated, (vi) all reasonable expenses incurred by the Holders (including all fees and disbursements of counsel, accountants, appraisers, investment bankers, and all other professionals, experts, and advisors of the Holders) in connection with any amendment or requested amendment of, or waiver or consent or requested waiver or consent under or with respect to, this Agreement, the Notes or any of the Security Documents, whether or not the same shall become effective (including counsel fees and disbursements), (vii) all reasonable expenses incurred by the Holders (including all fees and disbursements of counsel, accountants, appraisers, investment bankers, and all other professionals, experts, and advisors of the Holders) following the occurrence and during the continuance of any Default or Event of Default or incident to the negotiation of any workout, restructuring or similar arrangement relating to the Company or any Collateral, including any reorganization or liquidation case or proceeding, whether or not suit is commenced, and (viii) all other reasonable obligations, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement, the Notes or the Security Documents or any other documents 32 37 contemplated by or referred to herein or therein or any action taken or omitted to be taken by the Holders with respect to any of the foregoing; provided, however, that the Holders shall not be entitled to the payment and indemnification set forth in clause (viii) in connection with any action taken or omitted to be taken by the Holders that is judicially determined by a court of competent jurisdiction in a final judgment not subject to appeal to have resulted from the bad faith, willful misconduct or gross negligence of the Holders; provided, further, that the Company shall not be required to pay the fees and expenses for more than one law firm with respect to expenses incurred by the Holders having at least 25% of the outstanding principal amount of all Notes as described in clauses (vi), (vii) or (viii) above. The obligations of the Company under this Section 11.02 shall survive the payment or prepayment in full or transfer of any Note, the enforcement of any provision hereof or thereof, any such amendments, waivers or consents, any such Default or Event of Default, and any such workout, restructuring or similar arrangement. Section 11.03. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by or on behalf of any party to this Agreement or in any document, certificate or statement delivered hereto or otherwise in connection herewith, shall (i) survive the execution and delivery of this Agreement and the delivery of the Notes to Purchaser and shall continue in effect as long as any one of the Notes is outstanding and thereafter shall survive as provided in Sections 11.02 and 11.06, and (ii) be deemed to have been relied upon by the Holders, regardless of any investigation made by the Holders or on its behalf. Section 11.04. Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns; provided, however, that the Company shall not have the right to assign its rights hereunder or any interest herein or to delegate any of its duties hereunder without the prior written consent of the Holders. (b) Purchaser represents that (i) it is either (x) an "accredited investor" as such term in defined in Rule 501 (a) of Regulation D promulgated under the Securities Act, or (y) not a U.S. Person as defined in Rule 902 of Regulation S promulgated under the Securities Act, and (ii) it is purchasing the Notes for its own account for investment and not with a view to a public distribution thereof (within the meaning of the Securities Act and rules and regulations promulgated thereunder). Each Note shall bear a restrictive legend in substantially the following form: 33 38 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION, UNDER SAID ACT. (c) Subject to compliance with applicable Federal securities laws and regulations and state "blue sky" laws and regulations, Purchaser may at any time sell or assign to any Person all or any part of its rights in the Notes and in the obligations of the Company and the obligations of Purchaser under this Agreement, the Notes and the Security Documents (including the obligations of Purchaser to purchase Notes), and each such assignee shall assume the rights and obligations of Purchaser hereunder and thereunder, to the extent of such assignment, pursuant to an instrument in writing executed by such assignee and Purchaser. Execution and delivery of such an instrument shall be deemed to be a representation by such assignee that the factual statements contained in Section 11.04(b) are true with respect to such assignee. Upon execution and delivery of such an instrument, such assignee shall be a party to this Agreement and shall have the rights and obligations of Purchaser (including it rights under this Section 11.04(c)), to the extent of such assignment, and the assignor shall be released from its obligations hereunder to a corresponding extent. Upon the consummation of any assignment pursuant to this Section 11.04(c), the assignor and the Company shall make appropriate arrangements so that, if required, new Notes shall be issued to Purchaser and the assignee. Purchaser shall give the Company prior written notice of the date that any such assignment shall become effective, which date shall be no less than 10 days after the date such notice is given. Section 11.05. Notices. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall conclusively be deemed to have been validly served, given or delivered upon: (a) completed transmission by facsimile or hand delivery during normal business hours or; (b) the first Business Day after (i) deposit with an overnight courier service or overnight mail delivery service (ii) completed transmission by facsimile or hand delivery after normal business hours; or (c) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: 34 39 in the case of the Company, to: TransAmerican Refining Corporation 1300 North Sam Houston Parkway East Suite 310 Houston, Texas 77032-2949 Attention: Ed Donahue Telecopy No.: (281) 986-8820 in the case of Purchaser, to: c/o Merrill Lynch Asset Management 800 Scudders Mill Road Plainsboro, New Jersey 08536 Attention: Vincent Lathsbury Telecopy No.: (609) 282-2940 or at such other address or telecopy number or to the attention of such other Person as any of such Persons shall have advised the other by notice to any Holder at its registered address in the manner herein specified. Section 11.06. Indemnification. In consideration of the execution and delivery of this Agreement by Purchaser the Company hereby agrees to defend, indemnify, exonerate and hold harmless the Holders and each of their officers, directors, stockholders, affiliates, trustees, employees and agents, and each other Person, if any, controlling the Holders or any of their Affiliates (herein collectively called the "Indemnitees") from and against any and all actions, causes of action, suits, losses, liabilities and damages, and reasonable expenses in connection therewith, including reasonable counsel fees and disbursements incurred in the investigation and defense of claims and actions (herein collectively called the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of or relating to: (a) this Agreement, the Notes, the Security Documents, the purchase of the Notes or the other transactions contemplated hereby or thereby, or any action or failure to act by the Company with respect thereto (including statements or omissions made, or information provided by the Company or its Subsidiaries, officers, employees or agents); or (b) any Environmental Matter, any Environmental Law or the actual or alleged existence or release of any Material of Environmental Concern; 35 40 except for any such Indemnified Liabilities that are finally judicially determined to have resulted from the Indemnitee's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The obligations of the Company under this Section 11.06 shall be in addition to any liability that the Company may otherwise have and shall survive the payment or prepayment in full or transfer of any Note and the enforcement of any provision hereof or thereof. Nothing in this Section 11.06 shall limit, negate or release, or in any way obligate the Company to indemnify the Holders for any breach of any of the Holders' obligations under this Agreement or any of the Security Documents. Section 11.07. Public Announcements. The Company and the Holders agree that they will not issue any press release or make any other public announcement, statement or filing with regard to this Agreement, the Notes or the other Security Documents or the transactions hereby or thereby contemplated without the prior approval, in each case, of the other parties to this Agreement, which approval shall not be withheld in any case where such press release, public announcement, statement or filing is required by applicable law (including applicable rules and regulations of the SEC). Section 11.08. No Fiduciary Relationship. The relationship between the Holders, on the one hand, and the Company, on the other hand, is solely that of debtor and creditor, and the Holders shall not be deemed to have any fiduciary or other special relationship with the Company or any of its Subsidiaries. No provision of this Agreement, the Notes or any of the Security Documents shall be construed to create a fiduciary duty on the part of the Holders in favor of the Company, any of its Subsidiaries or Affiliates, or their respective directors, officers, employees, agents, stockholders or creditors. Section 11.09. Integration and Severability. This Agreement, the Notes and the Security Documents embody the entire agreement and understanding between the Holders and the Company, and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any one or more of the provisions contained in this Agreement or in any instrument contemplated hereby for such date, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other application thereof, shall not in any way be affected or impaired thereby. Section 11.10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument. Section 11.11. Governing Law. The laws of the State of New York (without regard to principles of conflict of laws that would cause the application of the laws of any other jurisdiction) 36 41 shall govern the construction, interpretation, and enforceability of this Agreement and any dispute, case or controversy arising in or under or related to or connected with this Agreement or the relationship between or among the parties hereto, whether sounding in tort, contract, or other legal or equitable relief. SECTION 11.12. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE. (a) THE COMPANY CONSENTS AND AGREES TO THE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING IN OR UNDER OR RELATED TO THIS AGREEMENT INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP AMONG THE HOLDERS, ON THE ONE HAND, AND THE COMPANY, ON THE OTHER HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE EXCEPT AS OTHERWISE PROVIDED IN SECTION 11.12(c). (b) THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY TO IT AT ITS ADDRESS SET FORTH ABOVE IN SECTION 11.05, OR, AT THE OPTION OF THE HOLDERS, BY SERVICE UPON CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NY 10019, WHICH THE COMPANY IRREVOCABLY APPOINTS AS SUCH PERSON'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF NEW YORK. IN ADDITION, THE HOLDERS AGREE TO PROMPTLY FORWARD, BY FIRST CLASS MAIL, HAND DELIVERY OR FACSIMILE ANY PROCESS SO SERVED UPON SAID AGENT TO THE COMPANY, AS APPLICABLE, AT ITS ADDRESS SET FORTH ABOVE IN SECTION 11.05. THE COMPANY HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. (c) NOTHING IN THIS SECTION 11.12 SHALL AFFECT THE RIGHT OF THE HOLDERS TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE HOLDERS TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 11.13. MUTUAL WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDERS ACKNOWLEDGES THAT IT MAY HAVE A 37 42 CONSTITUTIONAL RIGHT TO TRIAL BY JURY OF CERTAIN DISPUTES. HOWEVER, BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. EACH OF THE COMPANY AND THE HOLDERS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF (I) ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH; OR (II) CLAIMS IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, AND (III) ANY CLAIMS FOR DAMAGES, BREACH OF CONTRACT, SPECIFIC PERFORMANCE, OR ANY EQUITABLE OR LEGAL RELIEF OF ANY KIND HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. EACH OF THE COMPANY AND THE HOLDERS HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. SECTION 11.14. RELEASE OF COLLATERAL; SUBORDINATION. (a) Holders shall release all Liens created by the Mortgages or Security Documents upon indefeasible payment in full of the Notes on any Maturity Date or Redemption Date. (b) Holders shall release or subordinate any Liens created by the Mortgages or Security Documents to the extent such Liens are identified for release or subordination in a consent obtained in accordance with Section 11.01. (c) Holders shall release or subordinate the Lien created by the Mortgages or Security Documents on Dock No. 1 (designated Dock No. 2 in the Survey) upon the consummation of an offer to purchase (regardless of the principal amount of Notes tendered in connection with such offer to purchase) pursuant to clause (ii) of Section 3.02(c). 38 43 (d) Holders shall, upon request by the Company, subordinate the Lien created by the Mortgages or Security Documents to any Lien described in and meeting the requirements of clauses (d), (k) or (t) of the definition of "Permitted Liens" provided, however, that Holders shall not be required to subordinate the Lien created by the Mortgages or Security Documents on Dock No. 1 (designated Dock No. 2 in the Survey), except pursuant to Section 11.14(c). (e) Holders shall from time to time execute and deliver (at the expense of the Company) any and all further documents and instruments and take such further actions as the Company may reasonably request to effectuate the transactions contemplated by this Section 11.14. 39 44 IN WITNESS WHEREOF, the Company and Purchaser have executed this Agreement by their duly authorized officers as of the date first written above. TRANSAMERICAN REFINING CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ MERRILL LYNCH CORPORATE BOND FUND, INC. - HIGH INCOME PORTFOLIO By: --------------------------------------- Title: Authorized Representative 45 EXHIBIT A [FORM OF SENIOR SECURED NOTE] EX-27.1 15 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-31-1998 FEB-01-1997 JAN-31-1998 190,921 17,705 870 0 0 125,737 939,780 25,257 1,195,449 55,236 970,932 0 0 300 160,108 1,195,449 0 2,828 0 0 49,226 0 113,400 (17,097) 0 (17,097) 0 (94,911) 0 (112,008) (3.73) (3.73)
EX-27.2 16 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-31-1997 FEB-01-1996 JAN-31-1997 613 0 0 0 0 1,289 555,816 16,930 564,241 42,103 412,319 0 0 300 81,063 564,241 10,857 10,857 11,544 11,544 65,852 0 73,503 9,406 0 9,406 0 0 0 9,406 0.31 0.25
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