<PAGE>   1
 
                                                                    EXHIBIT 99.1
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The Company's directors and executive officers are as follows:
 
<TABLE>
<CAPTION>
                NAME                                        OFFICE                       AGE
                ----                                        ------                       ---
<S>                                    <C>                                               <C>
John R. Stanley......................  Director and Chief Executive Officer              58
Thomas B. McDade.....................  Director and Chairman of the Board                73
James R. Lesch.......................  Director                                          75
Robert L. May........................  Director                                          73
Donald D. Sykora.....................  Director                                          66
Arnold H. Brackenridge...............  President and Chief Operating Officer             64
Edwin B. Donahue.....................  Vice President, Chief Financial Officer and
                                       Secretary                                         46
Richard P. Bianchi...................  Vice President and General Counsel                45
Alan E. Drane........................  Vice President of Operations                      35
</TABLE>
 
     The Company's Board of Directors is divided into three classes, Class I,
Class II, and Class III. The Board of Directors presently consists of five
directors: one in Class I, one in Class II, and three in Class III, whose terms
of office expire with the 1997, 1998 and 1999 annual meetings, respectively, and
when their successors are elected and qualified.
 
     Set forth below is a description of the backgrounds of the directors of the
Company:
 
                                                 CLASS I -- TERM EXPIRES IN 1997
 
     John R. Stanley has been a director and Chief Executive Officer of the
Company since May 1993. Mr. Stanley is also a director and the Chief Executive
Officer of Transmission, TEC and TARC. Mr. Stanley is also the founder, Chairman
of the Board, Chief Executive Officer, and sole stockholder of TNGC Holdings,
which is the sole stockholder of TransAmerican, which is the indirect majority
stockholder of the Company. He has operated TransAmerican since 1958. Mr.
Stanley is the father-in-law of Alan E. Drane, the Vice President of Operations
for the Company.
 
     CLASS II -- TERM EXPIRES IN 1998
 
     Thomas B. McDade has been Chairman of the Board of the Company since May
1993. Mr. McDade is also a director of Transmission, TEC and TARC. Mr. McDade is
primarily engaged in managing his personal investments and in providing
consulting services in Houston, Texas. Mr. McDade was a director of
TransAmerican from 1985 until 1995. Prior to 1989, he served as a consultant to
Texas Commerce Bancshares, Inc. and prior to July 1985 he served as Vice
Chairman and Director of Texas Commerce Bancshares, Inc. and Vice Chairman and
Advisory Director of Texas Commerce Bank. Mr. McDade served as a director and
trustee of eleven registered investment companies from 1985 to 1995 for which
John Hancock Funds serves as investment advisor in Boston, Massachusetts. Mr.
McDade is a former director of Houston Industries, Inc. and Houston Lighting &
Power Company. He is also a former member of the Board of Managers of the Harris
County Hospital District and former Chairman of the State Securities Board of
Texas.
 
     CLASS III -- TERM EXPIRES IN 1999
 
     James R. Lesch has been a director of the Company since August 1993. Mr.
Lesch also serves as a director of Transmission. He is retired from Hughes Tool
Company, where he was the Chairman and Chief Executive Officer. Mr. Lesch was
with Hughes Tool Company for 40 years. He is a former director of Raymond
International, Borg-Warner Corporation, Texas Commerce Bancshares, Dun &
Bradstreet Corporation, Houston Industries, Inc., Houston Lighting & Power
Company and Rowan Companies, Inc. Mr. Lesch currently serves as a director of
YPF Sociedad Anonima and Maxus Energy Corporation.
<PAGE>   2
 
     Robert L. May has been a director of the Company since August 1993. Mr. May
is also a director of Transmission. He is retired from Arthur Andersen & Co.,
where he was a Senior Partner. Mr. May was a partner with Arthur Andersen & Co.
for over 25 years. He has served as Chairman of the Board of the American
Institute of Certified Public Accountants and as President of the International
Federation of Accountants. Mr. May is a former director of Christiana General
Insurance Corporation of New York, Integrated Resources, Inc. and Fairchild
Industries, Inc.
 
     Donald D. Sykora has been a director of the Company since August 1993. Mr.
Sykora is also a director of Transmission. He is the former President and Chief
Operating Officer of Houston Industries, Inc., where he is currently attached to
the Office of the Chairman, with responsibility for special projects. Mr. Sykora
has been with Houston Industries, Inc. or its subsidiaries for 41 years. Mr.
Sykora is on the board of directors of Powell Industries, Inc., Pool Oil Field
Services, Inc. and American Residential Services, Inc. Mr. Sykora is a former
director of Houston Industries, Inc., Houston Lighting & Power Co., Utility
Fuels, Inc. and KBLCOM Incorporated.
 
     Set forth below is a description of the backgrounds of the executive
officers of the Company:
 
     Arnold H. Brackenridge has been President and Chief Operating Officer of
the Company since May 1993. Mr. Brackenridge is also the President of
Transmission and Executive Vice President of TransAmerican. From 1984 until June
1992, Mr. Brackenridge was the President and Chief Executive Officer of
Wintershall Energy, a business group of BASF Corporation. Mr. Brackenridge has
worked in the domestic and international oil and gas industry for 38 years.
 
     Edwin B. Donahue has been Vice President, Chief Financial Officer and
Secretary of the Company since May 1993 and also serves as Vice President, Chief
Financial Officer and Secretary of Transmission and Vice President and Secretary
of TransAmerican, TEC and TARC. Mr. Donahue has been employed in various
positions with TransAmerican and the Company over 20 years.
 
     Richard P. Bianchi has been Vice President and General Counsel since June
1995. From 1990 to June 1995, he was Judge of the 333rd State District Court in
Harris County, Texas. Prior to 1990, he was a partner in Bivin and Bianchi, a
business and civil litigation firm in Houston, Texas.
 
     Alan E. Drane has been Vice President of Operations of the Company and
Transmission since November 1995. Mr. Drane has held various production,
engineering, purchasing and operational responsibilities with TransTexas and its
affiliates since in March 1993. Prior to joining the Company, Mr. Drane was a
Senior Testing Engineer with the Teledynamics division of Hamilton Standard, a
subsidiary of United Technologies Corp. Mr. Drane is a son-in-law of Mr.
Stanley.
 
BOARD MEETINGS AND COMMITTEES
 
     The Board of Directors met 35 times during the fiscal year ended January
31, 1997. All directors, other than Mr. Stanley, attended at least 75% of all
meetings of the Board of Directors and each of the committees on which they
served. Mr. Stanley attended approximately 68% of such meetings.
 
     The Company has an Audit Committee and a Compensation Committee, but no
Nominating Committee.
 
     The Audit Committee is composed of Messrs. Lesch, May, and Sykora. The
Audit Committee reviews the scope of the independent auditors' examinations of
the Company's financial statements and receives and reviews their reports. The
Audit Committee meets with the independent auditors, receives recommendations or
suggestions for changes in accounting procedures, and initiates or supervises
any special investigations it may choose to undertake. The Audit Committee met
one time during the fiscal year ended January 31, 1997.
 
     The Compensation Committee is composed of Messrs. Lesch, Sykora, and
McDade. The Compensation Committee determines the nature and amount of
compensation of the Company's executive officers. The Compensation Committee met
one time during the fiscal year ended January 31, 1997.
<PAGE>   3
 
DIRECTOR COMPENSATION
 
     Each director, other than Mr. Stanley, is paid an annual director's fee of
$75,000 plus $750 for each board meeting and committee meeting attended
(exclusive of committee meetings occurring on the same day as board of
meetings.)
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and holders of more than 10% of the
Common Stock to file with the Securities and Exchange Commission ("SEC") and
Nasdaq initial reports of ownership and reports of changes in ownership of the
Common Stock. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file with the SEC. During
the fiscal year ended January 31, 1997, TARC, TEC, TransAmerican, TNGC Holdings
and John R. Stanley each filed one late report with respect to a sale. In
addition, Messrs. Sykora and Lesch each filed one late report with respect to a
transfer.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The following table summarizes the compensation paid during the fiscal
years ended July 31, 1994 and 1995, the six month Transition Period ended
January 31, 1996 and the fiscal year ended January 31, 1997 to the Chief
Executive Officer and each other executive officer of the Company whose total
annual salary and bonus exceeded $100,000 in the fiscal year ended January 31,
1997:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                ANNUAL COMPENSATION
                                                 --------------------------------------------------
          NAME AND PRINCIPAL POSITION            FISCAL                ALL OTHER     OTHER ANNUAL
                IN THE COMPANY                    YEAR      SALARY       BONUS      COMPENSATION(A)
          ---------------------------            ------    --------    ---------    ---------------
<S>                                              <C>       <C>         <C>          <C>
John R. Stanley................................   1997     $397,117    $     --         $5,154
  Chief Executive Officer                         1996*     175,000          --            807
                                                  1995      350,000          --          4,620
                                                  1994      350,000          --          4,620
Arnold H. Brackenridge.........................   1997     $294,808    $111,089         $2,435
  President and Chief Operating Officer           1996*     137,500      85,397(c)         721
                                                  1995      221,154          --          1,454
                                                  1994      175,000          --             80
Edwin B. Donahue...............................   1997     $215,385    $113,885         $4,731
  Vice President, Chief Financial Officer         1996*      90,384      83,397(c)       1,110
  and Secretary                                   1995      149,423          --          4,364
                                                  1994      134,234          --          3,997
Richard P. Bianchi(b)..........................   1997     $214,154    $     --         $  777
  Vice President and General Counsel              1996*     100,000          --             --
                                                  1995       11,538          --             --
Alan E. Drane..................................   1997     $116,923    $     --         $3,508
  Vice President of Operations                    1996*      23,077          --            692
</TABLE>
 
---------------
 
 *  Six months ended January 31, 1996 ("Transition Period")
 
(a) Reflects the amount contributed under the Company's savings plan. Certain of
    the Company'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) Mr. Bianchi joined the Company in June 1995.
 
(c) These bonuses were paid in fiscal 1997 for services rendered during the
    Transition Period.
<PAGE>   4
 
  Employment Agreements
 
     In August 1996, the Company and Mr. Brackenridge entered into an employment
agreement which provides for an annual salary of $295,000 and terminates on
August 12, 1997. If Mr. Brackenridge's employment is terminated prior to the
term of the agreement, the Company is required to pay Mr. Brackenridge his
salary for the remaining term of the agreement plus an additional six months'
salary.
 
     In June 1995, the Company and Mr. Bianchi entered into a one-year
employment agreement which provided for an annual salary of $200,000. In August
1996, the Company and Mr. Bianchi entered into a new employment agreement which
provides for an annual salary of $214,000 and terminates on August 12, 1997.
This employment agreement provides that if Mr. Bianchi's employment is
terminated prior to the term of the agreement, the Company is required to pay
Mr. Bianchi his salary for the remaining term of the agreement plus an
additional six months' salary.
 
  Savings Plan
 
     The Company maintains a long-term savings plan (the "Savings Plan") in
which eligible employees of the Company 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
the Company 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 the Company will contribute that amount to the Savings Plan on
a pre-tax basis on behalf of the participant. The Code limits the annual amount
that a participant may elect to have contributed on his behalf on a pre-tax
basis to the Savings Plan. For 1997, this limit is $9,500. The Company 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 the Company'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
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 the Company. As of January 31, 1997, approximately 1,840
employees were eligible to participate in the Savings Plan, including Messrs.
Stanley, Brackenridge, Donahue, Bianchi and Drane.
 
  Compensation Committee Interlocks and Insider Participation
 
     The Compensation Committee is composed of Messrs. Lesch, McDade and Sykora.
During the fiscal year ended January 31, 1997, none of the members of the
Compensation Committee was an officer or employee of the Company or any of its
subsidiaries, and none had any relationship with the Company requiring
disclosure under Item 404 of Regulation S-K.
<PAGE>   5
 
  Report of the Compensation Committee
 
     The Compensation Committee of the Board of Directors has furnished the
following report on the Company's executive compensation program. The report
describes the Compensation Committee's policies applicable to the Company's
executive officers and provides specific information regarding the compensation
of the Company's Chief Executive Officer.
 
     The Compensation Committee administers and oversees the Company's executive
compensation program. The Committee is responsible for the review of the
objectives, structure, cost and administration of the Company's compensation and
benefit policies and programs. The Committee was created in August 1993 and met
once during the fiscal year ended January 31, 1997.
 
     The Committee's basic policy is to ensure that salary levels and
compensation incentives are designed to attract and retain qualified individuals
in key positions and are commensurate with the level of executive
responsibility, the type and scope of the Company's operations, and the
Company's financial condition and performance. The goal of the policy is to
promote the attainment of the financial and strategic objectives of the Company
and, thus, enhance stockholder value.
 
     The Committee receives recommendations from the Company's Chief Executive
Officer with respect to salaries, bonuses and other compensation to be paid to
the Company's executive officers. The Committee reviews these recommendations
and takes such action as it deems appropriate.
 
     Currently, the base salaries of the Company's executive officers may be
augmented at the discretion of the Compensation Committee by the award of
performance-based cash bonuses. The Compensation Committee has not followed a
formal policy with respect to the award of bonuses; however, the factors
enumerated above are considered in determining bonus awards. A formal policy may
be formulated in response to Section 162(m) of the Internal Revenue Code, which
limits the deductibility of executive compensation in excess of $1 million. The
Company does not currently grant stock options to any of its executive officers
or key employees. In fiscal 1997, the Committee determined to pay a cash bonus
to Messrs. Brackenridge and Donahue for services rendered by them during the six
month Transition Period ended January 31, 1996.
 
     As described above, the Compensation Committee determines the pay level for
all executives, including the Chief Executive Officer. Mr. Stanley is paid a
base salary and is eligible for a performance-based cash bonus. Although Mr.
Stanley did not receive a bonus for services rendered during the fiscal year
ended January 31, 1997, future performance-based bonuses will be based upon
quantifiable objectives as to comply with Section 162(m) of the code.
 
     This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Annual Report into any filing under
the Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
 
                                            The Compensation Committee of the
                                            Board of Directors
 
                                            James R. Lesch
                                            Thomas B. McDade
                                            Donald D. Sykora
<PAGE>   6

                            TOTAL STOCKHOLDER RETURN

TRANSTEXAS GAS CORP.
NASDAQ INDEX
PEER GROUP


<TABLE>
<CAPTION>

                                                            MONTH ENDING
----------------------------------------------------------------------------------------------------------------------------
                        10-
                       Mar94   Mar94   Apr94   May94   Jun94   Jul94   Aug94   Sep94   Oct94   Nov94   Dec94   Jan95   Feb95
----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>    <C>     <C>     <C>     <C>     <C>
TRANSTEXAS GAS CORP.   100      89      90      84      85      81      83      81      95      86      80      75      81
----------------------------------------------------------------------------------------------------------------------------
NASDAQ INDEX           100      94      93      93      90      92      96      97      99      96      96      97     102
----------------------------------------------------------------------------------------------------------------------------
PEER GROUP             100     102     114     108     109     101      98      99     109      93      90      86      97
----------------------------------------------------------------------------------------------------------------------------


<CAPTION>

                                                            MONTH ENDING
----------------------------------------------------------------------------------------------------------------------------
                       Mar95   Apr95   May95   Jun95   Jul95   Aug95   Sep95   Oct95   Nov95   Dec95   Jan96   Feb96   Mar96
----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>    <C>     <C>     <C>     <C>     <C>
TRANSTEXAS GAS CORP.    80      95     103     108     106     127     129     114     113      96      84      77      71
----------------------------------------------------------------------------------------------------------------------------
NASDAQ INDEX           105     108     111     120     128     131     134     133     136     136     136     141     142
----------------------------------------------------------------------------------------------------------------------------
PEER GROUP             106     101     107      99     100     108     103      96     102     111     106     108     113
----------------------------------------------------------------------------------------------------------------------------


<CAPTION>

                                                            MONTH ENDING
----------------------------------------------------------------------------------------------------
                       Apr96   May96   Jun96   Jul96   Aug96   Sep96   Oct96   Nov96   Dec96   Jan97
----------------------------------------------------------------------------------------------------
<S>                    <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>    <C>     <C> 
TRANSTEXAS GAS CORP.    72      64      68      63      79      82     100      96     104     121
----------------------------------------------------------------------------------------------------
NASDAQ INDEX           154     161     153     140     147     159     157     167     167     178 
----------------------------------------------------------------------------------------------------
PEER GROUP             119     115     130     119     123     127     140     147     143     138 
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>   7
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth certain information with respect to the
beneficial ownership of Common Stock, as of April 30, 1997, by (i) each
director, (ii) the Company's chief executive officer and the other executive
officers whose total salary and bonus exceeded $100,000 in the fiscal year ended
January 31, 1997, (iii) all current directors and executive officers of the
Company as a group, and (iv) each person known to the Company to beneficially
own more than five percent of the outstanding shares of Common Stock. Except as
otherwise indicated, each stockholder identified in the table has sole voting
and investment power with respect to its or his shares.
 
<TABLE>
<CAPTION>
                                                                    SHARES OWNED
                                                              ------------------------
                      NAME AND ADDRESS                          NUMBER      PERCENTAGE
                      ----------------                        ----------    ----------
<S>                                                           <C>           <C>
John R. Stanley(1)..........................................  59,357,600         80.21%
  1300 North Sam Houston Parkway East, Suite 310
  Houston, Texas 77032
TNGC Holdings Corporation(2)................................  59,350,000         80.20%
  1300 North Sam Houston Parkway East, Suite 310
  Houston, Texas 77032
TransAmerican Natural Gas Corporation(3)....................  59,350,000         80.20%
  1300 North Sam Houston Parkway East, Suite 300
  Houston, Texas 77032
TransAmerican Energy Corporation(4).........................  50,450,000         68.18%
  1300 North Sam Houston Parkway East, Suite 200
  Houston, Texas 77032
TransAmerican Refining Corporation..........................  10,450,000         14.12%
  1300 North Sam Houston Parkway East, Suite 320
  Houston, Texas 77032
Thomas B. McDade............................................     100,000             *
Arnold H. Brackenridge......................................       3,500             *
Edwin B. Donahue............................................       1,400             *
James R. Lesch(5)...........................................       1,000             *
Robert L. May...............................................       1,000             *
Donald D. Sykora(6).........................................       1,000             *
Richard P. Bianchi..........................................          --            --
Alan E. Drane(7)............................................         200             *
All directors and executive officers as a group (9
  persons)..................................................  59,465,700         80.36%
</TABLE>
 
---------------
 
 *  Less than 1% of the outstanding shares of the Company.
 
(1) Mr. Stanley owns 3,500 shares of Common Stock. Mr. Stanley is the sole
    stockholder of TNGC Holdings, and may be deemed to beneficially own all of
    the shares of Common Stock owned beneficially by TNGC Holdings. Mr. Stanley
    is also deemed to beneficially own 4,100 shares held by his wife.
 
(2) TNGC Holdings owns all of the shares of common stock of TransAmerican, and
    may be deemed to beneficially own all of the shares of Common Stock owned
    beneficially by TransAmerican.
 
(3) TransAmerican owns 5,000,000 shares of Common Stock. TransAmerican also owns
    all of the common stock of TEC, all of the common stock of TransAmerican
    Exploration Corporation ("TEXC"), which owns 3,700,000 shares of Common
    Stock, and all of the common stock of Southeast Marine, Inc., which owns
    200,000 shares of Common Stock. TransAmerican may be deemed to beneficially
    own all of the shares of Common Stock held and owned beneficially by TEC,
    TEXC and Southeast Marine.
 
(4) TEC owns 40,000,000 shares of Common Stock. TEC also owns all of the common
    stock of TARC, and may be deemed to beneficially own the 10,450,000 shares
    of Common Stock held by TARC.
<PAGE>   8
 
(5) The Lesch Family Limited Partnership, of which Mr. Lesch is the sole general
    partner and also a limited partner, owns 1,000 shares of Common Stock;
    therefore, Mr. Lesch may be deemed to beneficially own the 1,000 shares held
    by The Lesch Family Limited Partnership.
 
(6) Sykora Interests Ltd., a limited partnership in which Mr. Sykora is a
    managing general partner, owns 1,000 shares of Common Stock; therefore, Mr.
    Sykora may be deemed to beneficially own the 1,000 shares held by Sykora
    Interests Ltd.
 
(7) These shares are held of record by Mr. Drane's wife.
 
     In connection with a public offering of debt securities by TARC, TEC and
TARC pledged the shares of Common Stock held by them to secure TARC's debt
securities and TEC's guarantee of TARC's debt securities. Under certain
circumstances, a sale of Common Stock upon foreclosure by the holders of the
TARC debt securities would constitute a "change of control" of the Company under
the Indenture governing the Company's Senior Secured Notes, which would allow
the holders thereof to require the Company to repurchase the Notes at a price
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     In February 1996, the Company purchased the building for its corporate
headquarters from TransAmerican for $4 million.
 
     In December 1994, the Company entered into an interruptible gas sales
agreement with TransAmerican, revenues from which totaled approximately $11.7
million, $21.4 million, $11.1 million, $4.4 million and $14.7 million for the
years ended January 31, 1997 and 1996, the six months ended January 31, 1996 and
1995 and the year ended July 31, 1995, respectively. The receivable from
TransAmerican for natural gas sales totaled approximately $11.8 million at
January 31, 1997. Pursuant to this agreement, interest accrues on all unpaid
balances at a rate of prime plus 2% per annum.
 
     The Company sells natural gas to TARC under an interruptible long-term
sales contract. Revenues from TARC under this contract totaled approximately
$2.7 million and $2.4 million, respectively, for the years ended January 31,
1997 and 1996, $2.2 million and $2.3 million, respectively, for the six months
ended January 31, 1996 and 1995 and $2.5 million and $2.3 million, respectively,
for the years ended July 31, 1995 and 1994. The receivable from TARC for natural
gas sales totaled approximately $2.7 million at January 31, 1997.
 
     As of January 1996, the Company and TTEX entered into a Drilling Program,
as defined in the Indenture. Pursuant to the Program, TTEX received a portion of
revenues, in the form of a production payment, from certain of the Company's
wells. The production payment was transferred in consideration of a note payable
in the amount of $23.6 million issued by TTEX. In July 1996, TTEX transferred
this production payment to the Company in the form of a dividend, and the
Company forgave the $13.2 million remaining balance of the note payable.
 
     In July 1996, TTEX loaned $9.5 million to TransAmerican pursuant to the
terms of a $25 million promissory note due July 31, 1998 that bears interest,
payable quarterly, at 15% per annum. TTEX has made further advances pursuant to
the note, subject to the same terms. The amount outstanding under this
promissory note totaled approximately $25 million at January 31, 1997. The
Company believes that the advances by TTEX to TransAmerican reduce the risk of
tax deconsolidation (and potential tax liability of the Company) that could be
caused by the sale of shares of the Company's common stock by TransAmerican or
its affiliates. TransAmerican has not made its scheduled interest payment on
this note. TTEX has agreed to defer the interest payments on the note until
1998.
 
     Pursuant to the terms of the Transfer Agreement, TransAmerican is obligated
to indemnify the Company for all future losses incurred in connection with
litigation or bankruptcy claims assumed in the Transfer. In order to facilitate
the settlement of the Terry/Penrod litigation in May 1996, the Company advanced
to TransAmerican $16.4 million of the settlement amount in exchange for a note
receivable. TransAmerican has
<PAGE>   9
 
not made its scheduled interest payments on this note. The Company has agreed to
defer the interest payments on the note until 1998. In addition, the Company
transferred escrowed funds of approximately $22 million to TransAmerican. In
connection with this settlement, the Company received from Terry the
reversionary interest in certain producing properties. The Company and
TransAmerican had intended that such interests would revert to TransAmerican
under the Transfer Agreement; however, the Company retained such interests in
partial satisfaction of TransAmerican's indemnity obligations.
 
     In September 1996, the Company purchased from TransDakota Oil Corporation
("TDOC"), a subsidiary of TransAmerican, certain oil and gas leasehold interests
located in the Lodgepole area in North Dakota for approximately $20 million. The
Company believes that the combination of these interests, together with the
Company's other interests in the Lodgepole area, will produce a more marketable
property package. The purchase price was $3.9 million greater than TDOC's basis
in the properties. The properties have been recorded in the Company's financial
statements at carryover basis and the $3.9 million has been classified as a
reduction of retained earnings.
 
     The Company provides accounting and legal services to TARC and TEC and
drilling and workover, administrative and procurement, accounting, legal, lease
operating, and gas marketing services to TransAmerican pursuant to a services
agreement (the "Services Agreement"). The Company provides 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. At
TransAmerican's request, the Company, at its election, may provide drilling and
workover services.
 
     In September 1996, the Company and TransAmerican entered into an agreement
pursuant to which the Company obtained an $11.5 million dollar-denominated
production payment, subsequently increased to $19 million, bearing interest at
17% per annum, burdening certain oil and gas interests owned by TransAmerican as
a source of repayment for certain of the receivables from TransAmerican
discussed above. At January 31, 1997, $59 million of remaining related-party
receivables has been recorded as a contra-stockholder equity account due to
uncertainties regarding the repayment terms for such receivables. The Company
has agreed to defer any interest payments due from TransAmerican until 1998. On
January 31, 1997, TransAmerican conveyed at historical cost certain oil and gas
properties to the Company for a purchase price of $31.6 million. A portion of
the purchase price was used to offset obligations under the September 1996
production payment.
 
     In January 1997, an affiliate of the Company contributed all of the
outstanding common stock of Signal Capital Holdings Corporation ("SCHC") with a
book value of $6 million, to TransTexas. In the same month, TransTexas
contributed the stock of SCHC to TransTexas Transmission Corporation ("TTC").
See Note 13 of Notes to Consolidated Financial Statements.
 
     In January 1997, TransTexas contributed substantially all of its Lobo Trend
properties to TTC.