1
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _________________
Commission file number 0-6247
ARABIAN SHIELD DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10830 North Central Expressway
Suite 175 75231
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 692-7872
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------
Common Stock, par value $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (l) 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
----- -----
2
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. []
Number of shares of registrant's Common Stock, par value $0.10 per
share, outstanding as of March 20, 1995: 19,878,494.
The aggregate market value on March 20, 1995 of the registrant's
voting securities held by non-affiliates was $23,107,208.
DOCUMENTS INCORPORATED BY REFERENCE
(a) Selected portions of the registrant's Annual Report to
Stockholders for the year ended December 31, 1994. - Parts II
and IV
(b) Selected portions of the registrant's definitive Proxy
Statement for the Annual Meeting to be held May 5, 1995. -
Part III
3
PART I
Item 1. Business.
General
Arabian Shield Development Company (the "Company") was organized as a
Delaware corporation in 1967 and is principally engaged in the business of
developing its undeveloped mineral properties. None of the undeveloped mineral
properties are currently producing and significant capital expenditures will be
necessary before any commercial operations are commenced. In an updated full
bank feasibility study of the Al Masane lease area, which is under a 30-year
mining lease to the Company, conducted in 1994 by an independent
mining consulting firm, the consultants estimate the total capital costs of the
Al Masane project to be $81.3 million. The Company will diligently pursue the
financing of the project so that commercial production can begin in the fourth
quarter of 1996, as contemplated in the updated feasibility study. There can
be no assurance that adequate capital for the project can be obtained in order
for commercial production to begin as contemplated. The ultimate recovery of
mineral exploration and development costs of the Company's other mineral
properties cannot presently be determined.
The Company, through its indirect wholly-owned subsidiary, South
Hampton Refining Company ("South Hampton"), owns and operates a petroleum
refinery which is the Company's only significant revenue producing asset.
South Hampton has scheduled short-term and current portions of long-term debt
obligations which exceed its ability to repay from cash on hand and internally
generated funds. To satisfy its current debt obligations in an orderly manner,
South Hampton will need to renew certain debt obligations, achieve an increase
in cash flow from the refinery and/or receive funds from the Company from
future sales of the Company's Common Stock. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further discussion of these matters.
Saudi Arabian Activities. On May 22, 1993, the Company was granted a
30-year mining lease covering a 44 square kilometer area in the Al Masane area
in southwestern Saudi Arabia.
The Company jointly holds with National Mining Company, a private
Saudi company ("National Mining"), exploration licenses for the Wadi Qatan and
Jebel Harr areas in Saudi Arabia. The exploration licenses by their terms have
expired, and although Saudi Arabian government officials have orally advised
the Company that the licenses will be extended as long as mineral exploration
is being carried out on the areas which they cover, formal extensions from the
government have not been obtained and there can be no assurance that the
Company's license rights will be honored. The Company is planning to apply for
formal extensions of these licenses in 1995. Although the exploration licenses
were awarded
-1-
4
jointly to the Company and National Mining, the exploration work on the license
areas has been carried on exclusively by the Company.
The Company has had discussions with Chevron Chemical Company
regarding the Company's proposal to purchase 5,000 barrels per day of mixed
pentanes from an Aromax petrochemical project to be built in Jubail, Saudi
Arabia by Chevron Chemical in joint venture with Saudi Venture Capital Group
(SVCS). The Company and some Saudi joint venture partners, all of whom are
directors and/or stockholders of the Company, contemplate building a processing
plant located next to the Aromax plant in Saudi Arabia. As proposed, the
Company would have a 25% interest in the joint venture. Chevron Chemical
advised the Company by letter that Chevron Chemical and SVCS have jointly
agreed to commit to supply the joint venture's proposed pentane project with up
to 5,000 barrels per day of mixed pentane feedstock. Engineering and marketing
studies of the project have been made by outside consultants which reflect
positive results. Planning has begun toward the construction and operation of
the Aromax plant and the joint venture's processing plant. Construction is
estimated to be completed in late 1996. The Company will begin applying to the
Saudi government for a license for the project when the Aromax project receives
final approval from the Saudi government.
In December 1993, the Company commissioned Sherritt Ltd. of Fort
Saskatchewan, Canada, to prepare a conceptual engineering design for a proposed
zinc refinery based on Sherritt's two stage pressure leach process, to be built
by the Company and Saudi partners at the Red Sea port of Yanbu, Saudi Arabia.
The refinery would have the capacity to produce 100,000 tonnes of slab zinc per
year, with elemental sulfur as a by-product. Sherritt Ltd. completed the study
in May 1994 which contains a proposed flow sheet that has been commercialized
and designs for a state of the art zinc refinery. Sherritt's zinc pressure
leach technology provides significant advantages over the other existing zinc
production processes, including having the reputation as the most favored
technology for environmental considerations. In the study Sherritt concludes,
after considering all of the presently, identifiable elements, that these
elements offer a strong potential for the project and enhance the concept.
Sherritt encourages the Company to carry out further studies toward the
implementation of the project.
United States Activities. American Shield Refining Company, a wholly
owned subsidiary of the Company (the "Refining Company"), owns all of the
capital stock of Texas Oil and Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all
of the capital stock of South Hampton, and, indirectly through South Hampton,
owns all of the capital stock of Gulf States Pipeline Company, Inc. ("Gulf
States"). South Hampton owns and operates a petroleum refinery
-2-
5
near Silsbee, Texas. Gulf States owns and operates three pipelines which
connect the South Hampton Refinery to a natural gas line, to South Hampton's
truck and rail loading terminal and to a marine terminal owned by an
unaffiliated third party. The Company also owns all of the capital stock of
American Shield Coal Company (the "Coal Company") and beneficially owns
approximately 55%, and directly owns approximately 46%, of the capital
stock of an inactive Nevada mining company, Pioche-Ely Valley Mines,
Inc. ("Pioche-Ely Valley").
Al Masane Project
Prior Feasibility Studies. In the years following the granting of the
exploration licenses in August 1971, substantial geological and geophysical
work was accomplished on the Al Masane and Wadi Qatan license areas. Core
drilling on the licensed areas and studies conducted by independent consulting
firms indicated that the copper, zinc, gold and silver prospects at Al Masane
had a chance of being put into production sooner than the nickel prospect at
Wadi Qatan. Metallurgical tests also showed difficulty in separating the
nickel at Wadi Qatan. During 1977, a pre-feasibility mining study was conduct
at Al Masane by the mining consulting firm of Watts, Griffis and McOuat of
Toronto, Canada ("WGM"). WGM concluded that the Al Masane prospect should be
further developed and recommended an extensive development program for the
area.
Phase I of the development program recommended by WGM for Al Masane
was completed in April 1981 and involved underground development in the form of
a decline (700 meters) and tunnels (3,100 meters) parallel to the ore bodies
from where extensive underground core drilling was done to prove the ore
reserves. The project was financed for the most part with an $11 million
interest-free loan from the Saudi Arabian government (Ministry of Finance).
After completion of Phase I, the Company's consultants concluded that
sufficient ore reserves had been established to justify a full bank feasibility
study to determine the economic potential of establishing a commercial mining
and ore treatment operation at Al Masane. The study was conducted principally
by WGM, assisted by SNC/GECO of Montreal, Canada in engineering and costing.
The consultants concluded in their 1982 study that the Al Masane deposits would
support commercial production of copper, zinc, gold and silver and recommended
implementation of Phase II of the Al Masane development program, which involves
the construction of mining, ore treatment and support facilities. WGM
reevaluated the Al Masane project in September 1984 and concluded that the
cumulative effect of the factors considered in the reevaluation was positive.
Additional exploration work conducted at Al Masane and substantial
changes in metal prices and capital and operating costs
-3-
6
occurring since 1984 led the Company to request WGM to reevaluate the project
in early 1989. The additional exploration occurring after 1984 in the Al Houra
and Moyeath zones resulted in a better definition of and addition to these
zones. Consequently, the consultants revised their reserve estimates. Some of
the reserves previously defined as possible were reclassified as proven or
probable. Based on its reevaluation of the Al Masane project, WGM again
concluded that under the most realistic scenarios the proposed mining operation
was economically viable and had the potential to provide a satisfactory return
on investment.
In May 1992, WGM, at the Company's request, revised its cash flow
projections for the Al Masane project based on then current metal prices. The
cash flow projections were positive.
In both the 1989 reevaluation and the 1992 cash flow projections, WGM
continued to regard Al Masane as having high potential for the discovery of
additional ore zones.
1994 Feasibility Study. Following the granting of the mining lease to
the Al Masane area on May 22, 1993, the Company commissioned WGM to prepare a
new fully bankable feasibility study for presentation to financial institutions
in connection with obtaining financing for the project. The feasibility study
includes more metallurgical work incorporating advances in grinding of the ore;
incorporation of the latest advances in technology and reagents developed
during the past ten years; incorporation of new mill designs and the latest
water recycling methods; investigation into the shipping and marketing of zinc
and copper concentrates; and an economic analysis of the project. The
feasibility study contains specific recommendations to insure that the
construction of the project is accomplished as expeditiously and economically
as possible. Engineering design and costing of the project was done by Davy
International of Toronto, Canada. The feasibility study cost the Company
approximately $1 million and was presented to the Company on July 22, 1994.
The Al Masane ore is located in three mineralized zones known as
Saadah, Al Houra and Moyeath. The following table sets forth a summary of the
diluted minable, proven and probable ore reserves at the Al Masane project,
along with the estimated average grades of these reserves:
-4-
7
==============================================================================================================
Reserve Copper Zinc Gold Silver
Zone (Tonnes) (%) (%) (g/t) (g/t)
-------------------------------------------------------------------------------------------------------------
Saadah 3,872,400 1.67 4.73 1.00 28.36
Al Houra 2,465,230 1.22 4.95 1.46 50.06
Moyeath 874,370 0.88 8.92 1.29 64.85
--------- ---- ---- ---- -----
Total 7,212,000 1.42 5.31 1.19 40.20
-------------------------------------------------------------------------------------------------------------
For purposes of calculating proven and probable reserves, a dilution
of 5% at zero grade on the Saadah zone and 15% at zero grade on the Al Houra
and Moyeath zones was assumed. A mining recovery of 80% has been used for the
Saadah zone and 88% for the Al Houra and Moyeath zones. Mining dilution is
the amount of wallrack adjacent to the ore body which is included in the
ore extraction process.
Proven reserves are those mineral deposits for which quantity is
computed from dimensions revealed in outcrops, trenches, workings or
drillholes, and grade is computed from results of detailed sampling. For ore
deposits to be proven, the sites for inspection, sampling and measurement must
be spaced so closely and the geologic character must be so well defined that
the size, shape, depth and mineral content of reserves are well established.
Probable reserves are those for which quantity and grade are computed from
information similar to that used for proven reserves, but the sites for
inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. However, the degree of assurance, although lower than that
for proven reserves, must be high enough to assume continuity between points of
observation.
A review by WGM of the equipment and process flowsheet contained in
the 1982 feasibility study prepared by WGM indicated that new technology
developed during the past ten years could be used to reduce the capital cost
and improve the metallurgical recoveries. In particular, the use of
semi-autogenous grinding to reduce the capital cost of the grinding section and
developments in reagents were believed to hold the greatest potential for
improving the economies of the project. A detailed metallurgical testwork
program was undertaken by Lakefield Research in 1994 to address potential
improvements and provide detailed design criteria for the concentrator
design. Results from this testwork program showed that copper recovery could
be improved by 5.7% and zinc recoveries improved by 13% compared to the
1982 results.
-5-
8
The metallurgical studies conducted on the ore samples taken from the
zones indicated that 87.7% of the copper and 82.6% of the zinc could be
recovered in copper and zinc concentrates. Overall, gold and silver recovery
from the ore was estimated to be 77.3% and 81.3%, respectively, partly into
copper concentrate and partly as bullion through cyanide processing of zinc
concentrates and mine tailings.
A test program to evaluate the economies of the cyanidation of the zinc
concentrate and tailings in order to improve gold and silver recoveries found
gold and silver recoveries to range from 50% to 77%. To recover gold and silver
from the zinc concentrate and tailings, WGM recommended that a cyanidation
plant be included in process flowsheet. Dore bullion would be produced. WGM
concluded that the inclusion of a cyanidation plant would make a positive
contribution to the economies of the project under the base conditions.
The mining and milling operation recommended by WGM for Al Masane
would involve the production of 2,800 tonnes of ore per day (700,000 tonnes per
year), with a mine life of over ten years. Annual production is estimated to
be 34,900 tonnes of copper concentrate (25% copper per tonne) containing
precious metal and 58,000 tonnes of zinc concentrate (54% zinc per tonne). The
construction of mining, milling and infrastructure facilities is estimated to
take 18 months to complete. The total capital cost to bring the Al Masane
project into production is estimated to be $81.3 million. This cost includes
the pre-production development of the mine, the construction of a 2,000 tonne
per day concentrator, infrastructure with a 300 man camp facility and the
installation of a cyanidation plant to increase the recovery of precious metals
from the deposit. Project power requirements will be met by diesel generated
power.
WGM recommended that the Al Masane reserves be mined by trackless
mining equipment using either cut-and-fill or open- stopping methods depending
on the shape and location of each orebody. Once the raw ore is mined, it would
be subjected to grinding and treating process resulting in three products to be
delivered to smelters for further refining. These products are zinc
concentrate, copper concentrate and dore bullion. The copper concentrate will
contain valuable amounts of gold and silver. Total output per year is
estimated to be 22,000 ounces of gold and 800,000 ounces of silver. After
smelter refining process, the metals could be sold by the Company or the
smelter for the Company's account in the open market.
WGM prepared an economic analysis of the project utilizing cash flow
projections. The cash flow projection for a base case was made by WGM based on
the assumption that 50% of the financing of the project will come from the
Saudi Industrial Development Fund, which charges 2.5% service charge, 25% from
commercial loans at an interest rate of 5% and 25% from equity financing. The
cash flow projection includes the repayment of the $11 million loan outstanding
to the Saudi government in one payment at the end of
-6-
9
the mine life. Based on these assumptions, and assuming the average prices of
metal over the life of the mine to be $1.00 per pound for copper, $0.60 per
pound for zinc, $400 per ounce of gold and $6.00 per ounce of silver, WGM's
economic analysis of the base case shows the project will realize an internal
rate of return of 14% to the project, a rate of return of 11.9% and a net cash
flow of $26.6 million to the equity investors in the new Saudi public stock
company, and a net cash flow of $37 million to the Company. Other cash flow
scenarios calculated to show the effect of various opportunities and risks
associated with the project were also prepared. Assuming the mine begins
commercial production in mid-1996, as contemplated in the feasibility study,
the Company would not pay any income tax to the Saudi government for the first
five years or until after mid-2001. In the feasibility study, WGM recommends
that the Company make a decision to bring the Al Masane mine into production.
In the feasibility study, WGM states that there is potential to find
more reserves within the lease area, as the ore zones are all open at depth.
Further diamond drilling, which will be undertaken by the Company, is required
to quantify the additional mineralization associated with these zones. A
significant feature of the Al Masane ore zones is that they tend to have a much
greater vertical plunge than strike length; relatively small surface exposures
such as the Moyeath zone are being developed into sizeable ore tonnages by
thorough and systematic exploration. Similarly, systematic prospecting of the
small gossans in the area could yield significant tonnages of new ore.
Project Financing and Mining Lease. Pursuant to the mining lease
agreement, after the profitability of the project is established, as determined
by the Saudi Arabian government, the Company will form a Saudi public stock
company with the Petroleum and Mineral Organization ("Petromin"), the official
mining and petroleum company of the Saudi Arabian government. The Company will
own 50% of the shares of the Saudi public stock company and Petromin no more
than 25% of the shares. The remaining shares will be offered for sale in Saudi
Arabia pursuant to a public subscription. In consideration for its receiving
shares in the Saudi public stock company, the Company intends to transfer title
to the mining lease to the Saudi public stock company, including responsibility
for the repayment of the $11 million loan from the Saudi Arabian government and
the other obligations specified in the mining lease. In December 1994, the
Company received instructions from the Office of the Minister of Petroleum and
Mineral Resources stating that it is possible for the Company to form the Saudi
public stock company without Petromin but that the sale of stock to the Saudi
public should occur only after assured profits from commercial operations of
the mine. The instructions added that Petromin shall have the right to purchase
shares in the Saudi public stock company any time it desires.
Pursuant to these instructions the Company retained Carlyle SEAG
("Carlyle"), of Washington, D.C. and Saudi Arabia, as the Company's financial
advisor in connection with the Al Masane mining project. Carlyle's services
will include, but not be limited to, (1) advising on the capitalization
structure of the proposed Saudi company to be established for the project; (2)
the raising of capital funds for the project implementation; and (3) assisting
the Company on the filing of all licenses and necessary documents for
regulatory purposes.
While the Company agreed in the mining lease not to request a loan
which would fund 50% of the capital cost of the project from the Saudi Public
Development Fund, the Company intends to apply for a similar loan from the
Saudi Industrial Development Fund. The Saudi Industrial Development Fund makes
interest-free loans to industrial projects in Saudi Arabia and charges a 2.5%
service fee. The Company believes that it may be able to finance the cost of
the project through arrangements with suppliers and equipment manufacturers,
custom smelters and additional debt or equity financing secured by the Company,
however, there can be no assurances to that effect.
-7-
10
As the holder of the Al Masane mining lease, the Company is solely
responsible to the Saudi Arabian government for the rental payments and other
obligations provided for by the mining lease and repayment of the $11 million
loan jointly secured by the Company and National Mining from the Saudi Arabian
government. The mining lease provides that the Company will repay the loan
from the profits of the project. The initial term of the lease is for a period
of thirty (30) years from May 22, 1993, with the Company having the option to
renew or extend the term of the lease for additional periods not to exceed
twenty (20) years. Under the lease, the Company agrees to pay surface rental
at the rate of ten thousand Saudi Riyals (approximately $2,667 at the current
exchange rate) per square kilometer per year during the period of the lease.
In addition, the Company must pay income tax in accordance with the income tax
laws of Saudi Arabia then in force and pay all infrastructure costs. Under the
Mining Code, income tax will not be due in respect to mining operations during
the period of five years starting from the date of the first sale of products
or five years from the beginning of the fourth year after the issue of the
mining lease, whichever comes first. The lease gives the Saudi Arabian
government priority to purchase the Company's whole production of gold or any
part thereof from the project. The lease also gives the Saudi Arabian
government the right to purchase up to 10% of the Company's annual production
of other minerals on the same terms and conditions then available to other
similar buyers and at current prices then prevailing in the free market. The
lease contains provisions requiring that preference be given to Saudi suppliers
and contractors and that the Company employ Saudi Arabian citizens and provide
training to Saudi Arabian personnel.
Reference is made to the map on page 15 of this Report for information
concerning the location of the Al Masane project.
Other Exploration Areas in Saudi Arabia
The Company, along with National Mining and another Saudi private
company, have also applied to the Saudi government for an exploration license
covering a large area in northern Saudi Arabia
-8-
11
known as Ghurayyah. Preliminary investigations have indicated that the
Ghurayyah area contains substantial columbium, tantalum and other mineral
deposits.
During the course of the exploration and development of the Al Masane
area, the Company has carried on exploration work in other areas in Saudi
Arabia and it has applied for certain additional exploration licenses in that
country, including the Ghurayyah license.
With respect to the license areas, the Company and National Mining are
parties to an agreement with Petromin which governs the rights of the parties
if the exploration licenses granted to the Company and National Mining are
converted into a mining lease. Under this agreement, Petromin is granted an
option to acquire, at any time, a 25% interest in any project to mine minerals
in Saudi Arabia the exploration for which has been conducted under exploration
licenses granted to the Company and National Mining. The 25% interest is to be
derived from National Mining's interest in the mining lease. The Company will
have a 50% interest in the mining lease subject to this arrangement.
U.S. Mineral Interests
The Company has other mineral interests in the United States,
including approximately a 55% beneficial, and approximately a 46% direct,
equity interest in Pioche-Ely Valley. The Coal Company does not own or hold
any mineral interests and is presently inactive. The future of the Coal
Company's operations is uncertain. The Refining Company is a party to a joint
venture with a Saudi company and the former owners of TOCCO the purpose of
which is to engage in the trading of crude petroleum and refined petroleum
products. The joint venture has not consummated any petroleum trading
transactions.
Petroleum Refinery
South Hampton owns and operates a petroleum refinery near Silsbee,
Texas and currently employs 45 people. The refinery is presently devoted to
specialized processing activities. The refinery currently consists of seven
operating units which, while interconnected, make distinct products through
differing processes: (1) a pentane-hexane unit; (2) a catalytic reformer; (3)
an aromatics hydrotreating and fractionation unit; (4) a cyclopentane unit; (5)
an aromax unit; (6) an aldehyde hydrogenation unit; and (7) a specialty
fractionation unit. All of these units are presently in operation, except the
aldehyde hydrogenation unit. South Hampton is evaluating potential processing
alternatives for the aldehyde hydrogenation unit.
The design capacity of the pentane-hexane unit is approximately 2,200
BPD of feedstock. The unit averaged 1,650 barrels per stream day during 1994.
The unit consists of a series
-9-
12
of fractionation towers and hydrotreaters capable of producing high purity
solvents which are sold primarily to expandable polystyrene and high density
polyethylene producers. South Hampton purchases most of its feedstock for this
unit on the spot market.
The catalytic reforming unit is a standard industry design using
platinum-rhenium catalyst which produces an aromatics concentrate used as
feedstock for the aromatics extraction unit, as well as hydrogen which is
utilized in other processes. The design capacity of the reformer is 4,000 BPD.
The unit is operated as a standby source of hydrogen for the pentane-hexane
unit and does not run continually. The unit operates only when the aromax unit
has mechanical difficulties or when feedstock balances dictate. The unit
averaged 284 barrels per stream day during 1994.
The aromatics hydrotreating and fractionation unit consists of a
hydrotreating reactor and a single fractionation tower and has a design
capacity of 500 BPD. By-product chemical streams have historically been
processed by this unit into two products, high octane gasoline blendstocks and
heavy aromatic oils sold as fuel oil blending stock. This unit was placed into
service for a toll processing customer in mid-1993 and is expected to continue
operation at a throughput rate of approximately 110 barrels per stream day.
The cyclopentane unit consists of three specialized fractionation
towers designed to produce a consistently high quality product which is used in
the expandable polystyrene industry. The design capacity of the cyclopentane
unit is 400 BPD. The unit operates according to the feedstock supplied by the
pentane-hexane unit and averaged 261 barrels per stream day during 1994.
The aromax unit is the world's first commercial unit using a
proprietary process of Chevron Research Company to produce a high benzene
content product which is sold as feedstock to refiners operating benzene
extraction units. The process converts petroleum naphtha into liquid
hydrocarbons having a higher aromatic hydrocarbon content. The aromax unit
capacity is 400 BPD and uses a by-product of the pentane-hexane unit as
feedstock. The unit operates according to the feedstock supplied from pentane-
hexane unit and the other hydrotreaters. The unit averaged throughput of 211
barrels per stream day during 1994. Chevron Research has agreed to continue
development of the aromax process. The unit has continued to successfully
operate as designed.
The specialty fractionation unit consists of two fractionation towers
and a sulphur treater and has a design capacity of 1,000 BPD. The unit is
being used in toll processing for a customer and averaged 495 barrels per
stream day during 1994.
South Hampton also owns approximately 70 storage tanks with a total
capacity of approximately 250,000 barrels. The refinery is
-10-
13
situated on 100 acres of land, approximately 70 acres of which is developed.
South Hampton owns a truck and railroad loading terminal consisting of eight
storage tanks, a rail spur and truck and tank car loading facilities.
As a result of an expansion program of the production capacity of the
South Hampton refinery completed in 1990, essentially all of the standing
equipment at South Hampton is operational. The Company has surplus equipment
in storage on site with which to assemble further processing units, such as a
hydrocracking unit with a 2,000 BPD capacity.
The upgrading and expansion projects were completed at a cost which
exceeded the capital resources available to South Hampton to finance such
activities. Financing for the upgrading and expansion projects was provided
from advances by the Company through the Refining Company to South Hampton of a
portion of the proceeds of the sale of shares of the Company's Common Stock and
the advances by Chevron Research and another customer. The advances by the
Company through the Refining Company to South Hampton for the upgrading and
expansion of the refinery were $550,000 in the aggregate, $510,000 of which
amount is secured by a lien on the assets and properties of South Hampton,
which is subordinate to the liens securing the indebtedness of South Hampton to
Den norske Bank AS.
Gulf States owns and operates three 8" pipelines aggregating
approximately 45 miles in length which connect the South Hampton refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. South Hampton leases
storage facilities at the marine terminal.
Revenues and Financing
With the exception of revenues generated by the operations of the
Refining Company, the Company has been without significant operating revenues
since 1972. Accordingly, it has been necessary for the Company continually to
seek additional debt and equity financing in order to have funds to continue
development activities. In 1992, the Company sold 105,000 shares of its Common
Stock for $105,000, borrowed $250,000 from a Saudi Arabian investor which was
used as partial payment of the purchase price of 1,500,000 shares of the
Company's Common Stock which the Company sold to the investor at $1.00 per
share, borrowed a total of $75,000 from a stockholder of the Company who is the
Vice Chairman of National Mining, which amount was payable on demand, and
issued 500,000 shares of its Common Stock, valued by the Company's Board of
Directors at $1.00 per share, in exchange for the cancellation of certain
indebtedness owed to this stockholder.
In 1993, the Company (1) sold 75,000 shares of its Common Stock at
$1.00 per share to a private Saudi company controlled by
-11-
14
a director of the Company and sold an additional 300,000 shares of its Common
Stock at $1.00 per share to the same purchaser pursuant to an option exercise,
which shares are partly paid as a result of $100,000 of the exercise price
having been paid during 1993, (2) sold 3,000,000 shares of its Common Stock at
$1.00 per share to a Saudi Arabian investor, $300,000 of the purchase price of
which consisted of the cancellation of various loans made to the Company, (3)
sold 256,250 shares of its Common Stock for $256,250, (4) borrowed $13,279
from a stockholder of the Company who is the Vice Chairman of National Mining
pursuant to an interest-free demand note and (5) issued 200,000 shares of its
Common Stock, valued by the Company's Board of Directors at $1.00 per share, to
a company owned by the wife of the President of the Company in exchange for the
cancellation of certain indebtedness.
In 1994, the Company (1) negotiated an extension until June 30, 1995
of the maturity of the Amended and Restated Credit Agreement with Den norske
Bank AS, (2) issued 14,000 shares of its Common Stock of $1.00 per share
pursuant to an option exercised by the company's Chairman of the Board in
exchange for the cancellation of certain indebtedness, (3) consolidated two
notes payable by the Company's President and Chief Executive Officer, in the
amounts of $99,000 and $27,000, which matured on December 31, 1993 and January
31, 1994, respectively, into one note for $126,000 having a December 31, 1995
maturity date and bearing interest at the rate of six percent per annum, (4)
received $50,000 from a 1993 sale of its Common Stock to a private Saudi
company controlled by a director of the Company pursuant to a partial option
exercise and (5) offset $30,000 in unpaid compensation due to the Company's
Chairman of the Board against amounts owned to the Company by four companies
owned by the Chairman of the Board. It may be necessary to secure funds to
continue operations through the sale of portions of the Company's properties,
its investments or a portion of the Company's interest therein. There are no
assurances that these sales could be arranged or that sufficient additional
equity or debt financing can be obtained.
The Refining Company had operating income of approximately $2,414,000,
before depreciation and amortization of $646,000, on gross refined product
sales of $17,564,000 for the 1994 fiscal year, compared with operating income
of approximately $710,000, before depreciation and amortization of $678,000, on
gross refined product sales of $15,103,000 for the 1993 fiscal year, and a net
operating loss of approximately $113,000, before depreciation and amortization
of $682,000, on gross refined product sales of $13,320,000 for the 1992 fiscal
year.
Management believes that South Hampton will be able to continue to
attain a positive cash flow as a result of the upgrading and expansion
projects. Any such cash flow would, however, be insufficient to retire the
debt due on June 30, 1995, to Den norske Bank AS. At that time, South Hampton
will be required to attempt to re-extend or renegotiate the loan or seek to
-12-
15
obtain additional financing. It is possible that any further extension or
renegotiation will not be permitted without the retirement of a significant
portion of the debt. Failure to extend or renegotiate the loan with Den norske
Bank AS would require the Company to seek alternative sources of financing
which, if unsuccessful, could result in a foreclosure action and subsequent
loss of the refinery. Expiration of the guarantee of the letter of credit
portion of the Amended and Restated Credit Agreement resulted in Den norske
Bank AS drawing down a $1,500,000 letter of credit provided by the guarantor.
As a consequence, the Company is indebted to the guarantor for such amount.
In connection with the latest extension of the Den norske Bank AS
loan, South Hampton agreed to make quarterly principal payments of $200,000 and
the Company committed to use its best efforts to raise and contribute new
equity to South Hampton of at least $1,500,000 by June 30, 1995, such funds to
be used by South Hampton to pay amounts outstanding under the Amended and
Restated Credit Agreement.
In addition to requiring that a substantial portion of South Hampton's
cash flow be applied to reduce the amount outstanding, the Amended and Restated
Credit Agreement with Den norske Bank AS prohibits the payment of dividends by
South Hampton. South Hampton is also required to collect all receivables
through a cash collateral account at a local bank. Only the amount of funds
required to operate South Hampton's business may be used and weekly reports of
cash receipts and disbursements in the cash collateral account must be provided
to Den norske Bank AS. If South Hampton defaults on the credit agreement, Den
norske Bank AS has the right to freeze the funds in the cash collateral
account. South Hampton met all of the loan covenants throughout 1994.
There can be no assurance that the Company will successfully develop
any of its undeveloped mineral properties or, if developed, that they will be
commercially productive. None of the Company's undeveloped mineral properties
currently produces revenues, and such properties will not produce revenues from
operations to the Company unless and until exploration is completed and
successful development is accomplished. Meaningful progress in some of these
efforts is currently hampered by the Company's lack of sufficient operating
funds.
In the case of the Al Masane project, the Company must secure the
financing and construction of the mining and milling facilities before revenues
from that project may be realized. The Coal Company's lack of significant
assets, combined with the Company's lack of operating funds, inhibits any
future activities of the Coal Company. The Company is planning limited
exploration of the Pioche-Ely Valley properties in 1995.
The Company believes that acceptable financing for the estimated cost
of the Al Masane project can be arranged, although
-13-
16
there can be no assurance that such financing could be obtained. The results
of the feasibility study show the estimated total capital costs of the project
to be $81.3 million.
See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Item 12. Security Ownership of Certain
Beneficial Owners and Management and Item 13. Certain Relationships and
Related Transactions for further discussion of these matters.
Foreign Operations
Since a substantial portion of the Company's mineral properties and
interests are located outside of the United States, its business and properties
are subject to foreign laws and foreign conditions, with the attendant varying
risks and advantages. Foreign exchange controls, foreign legal and political
concepts, foreign government instability, international economics and other
factors create risks not necessarily comparable with those involved in doing
business in the United States.
Competition
If it reaches the point of engaging in commercial mineral production,
the Company expects to encounter strong competition from established mining
companies which in many cases will be more extensively capitalized and have
more extensive facilities and more numerous personnel than does the Company.
Personnel
In order to conserve all available funds, the Company continues to
keep its general and administrative personnel to a minimum. Its only officers
resident in the United States are Mr. John A. Crichton, Chairman of the Board,
and Mr. Drew Wilson, who works on a part-time basis for the Company and serves
as its Secretary and Treasurer. The other employees of the Company, numbering
approximately 29, consist of the office personnel and field crews conducting
core drilling and other exploration activities in Saudi Arabia under the
supervision of Mr. Hatem El-Khalidi, President and Chief Executive Officer of
the Company. South Hampton currently employs 45 persons.
-14-
17
[map]
-15-
18
Item 2. Properties.
Saudi Arabia Mining Properties
Al Masane. The Al Masane project, which consists of an area of
approximately 44 square kilometers, contains extensive ancient mineral workings
and smelters. From ancient inscriptions in the area, it is believed that
mining activities went on sporadically from 1000 B.C. to 700 A.D. The ancients
are believed to have extracted mainly gold, silver and copper. The discussion
of the Al Masane project set forth under Item 1. Business is incorporated
herein by reference.
Other Saudi Arabian Areas. In 1971, the government of Saudi Arabia
awarded the Company and National Mining exclusive mineral exploration licenses
to explore and develop the Wadi Qatan area in southwestern Saudi Arabia. The
companies were subsequently awarded an additional license in August of 1977
covering an area to the north of Wadi Qatan at Jebel Harr. The licenses have
expired by their terms, and although the Company has received verbal assurance
from Saudi Arabian government officials that the licenses will be extended as
long as exploratory work is being carried out on the areas which they cover,
formal extensions from the government have not been obtained. The Company and
National Mining have also applied for an additional license covering an area
surrounding the original Al Masane prospect, which is referred to as the
Greater Al Masane area. Although the license has not been formally granted,
the companies have been authorized in writing to carry out exploration work on
the area. Reference is made to the map on page 15 of this Report for
information concerning the location of the foregoing areas. The Company,
together with National Mining and another Saudi private company, the Red Sea
Mining Company, have also applied for an exploration license covering the
Ghurayyah area in northern Saudi Arabia.
The absence of current formal exploration licenses covering the areas
on which the Company has conducted, and is continuing to conduct, exploration
and development work in Saudi Arabia creates uncertainty concerning the
Company's rights and obligations concerning those areas. However, the Company
believes that it has satisfied the government's requirements concerning the
license areas and that the government should honor the Company's claims to
those areas.
In the event of the establishment of commercially exploitable
minerals, exploration licenses granted by the Saudi Arabian government may be
converted into mining leases upon application to the Saudi Arabian Ministry of
Petroleum and Mineral Resources. The Company and National Mining are parties
to an agreement with Petromin, the official mining and petroleum company of the
Saudi Arabian government, which governs the rights of the parties if an
exploration license granted to the Company and National Mining is
-16-
19
converted into a mining lease. Reference is made to the discussion concerning
the agreement under Item 1. Business.
Wadi Qatan and Jebel Harr. The Wadi Qatan and Jebel Harr areas
consist of 40 square kilometers, plus a northern extension of an additional 13
square kilometers. Geological and geophysical work by the Company and limited
core drilling disclose the existence of massive sulphides containing nickel.
Preliminary core drilling to shallow depths disclosed the existence of massive
sulfides containing an average of 1.2% nickel. Reserves for these areas have
not been classified and more drilling is needed to classify them as proven or
probable. Initial metallurgical studies by consultants to the Company in 1976
indicated difficulty in concentrating the nickel minerals. However, in 1983
the ore was examined by a metallurgical consulting company and it was
demonstrated that the ore can be treated to produce ferronickel and iron which
can be used to produce steel. The proposed method could be commercially viable
if enough ore is proven. Further metallurgical work by another consulting
company in 1985 indicated that the ore can be treated by hydrometallurgical
methods. The Company plans to obtain a renewal of its exploration licenses in
the Wadi Qatan and Jebel Harr areas to enable it to continue its drilling
program to prove enough ore for a viable mining operation. Although the
indications are encouraging there is no assurance that a viable mining
operation could be established.
Greater Al Masane. An application has been made and verbally approved
for another exploration license covering approximately 1,100 square kilometers
around Al Masane, sometimes referred to as Greater Al Masane, which includes an
ancient gold mining prospect at Jubal Guyan, about six miles east of the
original Al Masane prospect and seven miles west of Wadi Qatan. The Saudi
Arabian government has given the Company written authorization to conduct
exploration work on the area, although the license has not been formally
granted. Core samples indicate an average grade of 7 grams of gold per tonne.
Additional sampling is being conducted at Jubal Guyan, and after the results of
the sampling are obtained, an evaluation will be made as to future drilling
locations. Geological, geochemical and geophysical work on the Greater Al
Masane area has disclosed mineralization similar to that discovered at Al
Masane.
Ghurayyah. In 1980, the Company, together with National Mining
Company and the Red Sea Mining Company, applied jointly for an additional
exploration license covering the 7,000 square kilometer Ghurayyah area in the
northern part of Saudi Arabia. The application is still pending with the Saudi
Arabian Ministry of Petroleum and Mineral Resources.
A preliminary investigation of the area, which included core drilling,
was arranged by the Saudi Arabian Ministry and conducted by WGM prior to the
time the license application was filed. Based on the preliminary
investigation, WGM observed in December 1980
-17-
20
that "[t]he columbium and tantalum content to a depth of 250 meters below the
surface could add very significantly to world resources."
Pursuant to an exploration and development contract between the
parties, the Company, National Mining and Red Sea would each have a 15%
interest in the Ghurayyah license and the responsibility to carry out the
exploration work, and Petromin would have a 55% interest. The costs of
exploration would be shared based on each participant's percentage interest in
the license. As between the parties responsible for the exploration
activities, the Company would be the operator on the license area.
Refining Operations
South Hampton owns and operates a petroleum refinery near Silsbee,
Texas. South Hampton owns all of the capital stock of Gulf States, which owns
and operates three pipelines which connect the South Hampton refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. The properties owned by
South Hampton and Gulf States are more fully described in Item 1. Business.
Nevada Mining Properties
There are 48 patented and 84 unpatented claims totaling approximately
3,700 acres in the Pioche-Ely Valley properties. All the claims are located in
the Pioche District, Lincoln County, in southeastern Nevada. There are
prospects and mines on these claims which formerly produced silver, gold, lead,
zinc and copper. The ore bodies are both oxidized and sulfide deposits,
classified into three groups: fissure veins in quartzite, mineralized granite
porphyry and replacement deposits in carbonate rocks (limestone and dolomites).
The Company planned to drill a 1,500 foot test hole in 1994 in search of zinc
deposits. Drilling was conducted in September 1994. The drill hole
encountered formation problems at 700 feet and further drilling had to be
abandoned. A new site will be selected and a second hole is expected to be
drilled in 1995.
There is a 300-ton-a-day processing mill on property owned by
Pioche-Ely Valley. The mill is not currently in use and a significant
expenditure would be required in order to put the mill into continuous
operation. Pursuant to a lease commencing on October 1, 1993, the Wide Awake
mine property was leased for a primary term of twenty-seven months, which lease
will continue as long as minerals are produced in commercial quantities or
unless terminated by the parties. The lease stipulates a 6% royalty on net
smelter returns with no annual rental required. A significant core hole is
planned to be drilled on the Wide Awake claim in mid-1995.
-18-
21
Colorado Coal Properties
In March 1994, the Mined Land Reclamation Division, Department of
Natural Resources, of the State of Colorado elected to exercise its rights
under the letter of credit given by the Coal Company to secure completion of
the reclamation work on coal properties in Colorado previously leased by the
Coal Company. The Coal Company was required by the Mined Land Reclamation
Division to monitor the completed reclamation work and conduct additional
reclamation work on the coal properties until 2000. The letter of credit was
secured by a $36,000 certificate of deposit and in April 1994 was paid to the
State of Colorado. The Mined Land Reclamation Division's action concludes the
Coal Company's involvement in the reclamation project. The Coal Company has a
tax loss carry-forward of approximately $14.8 million which is limited to its
net income. The Coal Company is currently negotiating with a company toward the
possible use of this amount, although there can be no assurance that any
agreement relating thereto will be reached.
Offices
The Company has a year-to-year lease on space in an office building in
Jeddah, Saudi Arabia, used for office occupancy. The Company also leases a
house in Jeddah which is used as a technical office and for staff housing. The
Company continues to lease office space in an office building in the northern
part of Dallas, Texas on a month-to-month basis. It also has a base camp and
accompanying facilities and equipment at its license areas in Saudi Arabia.
Item 3. Legal Proceedings.
South Hampton filed suit on July 18, 1994 in the 88th Judicial
District Court in Hardin County, Texas against National Union Fire Insurance
Company arising from the claim of South Hampton under the Uniform Declaratory
Judgment Act for a ruling as to the construction of an insurance contract
issued by National Union insuring South Hampton. South Hampton also asserted
claims against National Union for breach of contract, negligence, breach of the
duty of good faith and fair dealing and certain violations of the Texas
Insurance Code. This case was removed to the United States District Court on
August 22, 1994. The court ordered that it will first consider South
Hampton's contractual coverage claims under the Uniform Declaratory Judgment
Act and abated all of the other claims pending the outcome of the
contractual coverage claims.
Any proceeds received by South Hampton from this cause of action would
be payable by South Hampton to Cajun Energy, Inc. and E-Z Mart Stores pursuant
to the terms of a judgment entered against South Hampton. South Hampton
consented to a settlement agreeement with Cajun Energy and E-Z Mart Stores in
May 1994 whereby the plaintiffs took a judgment against South Hampton for the
amounts claimed and the plaintiffs signed a "non-execution agreement" agreeing
not to execute upon the judgment in return for the assignment by South Hampton
of certain claims against National Union. This concludes the claims and actions
against South Hampton in these matters.
South Hampton, together with over twenty-five other companies, is a
defendant in two proceedings pending in the 60th Judicial District Court in
Jefferson County, Texas and in the 136th Judicial District Court of Jefferson
County, Texas, respectively, brought on July 21, 1993 and July 18, 1994,
respectively, by John Ricklefsen and James Griffin, two former employees of
the Goodyear Tire & Rubber Company plant located in Beaumont, Texas, claiming
illness and diseases resulting from alleged exposure to chemicals, including
benzene, butadiene and/or isoprene, during their employment with Goodyear.
Plaintiffs claim that the defendant companies engaged in the business of
manufacturing, selling and/or distributing these chemicals in a manner which
subjects each and all of them to liability for unspecified actual and punitive
damages. South Hampton intends to vigorously defend against these lawsuits.
The Company is not involved in any proceeding regarding environmental
matters. See Note 4 to the Consolidated Financial Statements for a discussion
of certain environmental matters.
-19-
22
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company' stockholders during
the fourth quarter of 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
This information is set forth under the caption "Market for the
Company's Common Stock and Related Stockholder Matters" of the Company's 1994
Annual Report to Stockholders filed herein as Exhibit 13, which portion of such
Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data.
This information is set forth under the caption "Selected Financial
Data" for each of the five years in the period ended December 31, 1994, of the
Company's 1994 Annual Report to Stockholders filed herein as Exhibit 13, which
portion of such Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This information is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the Company's 1994 Annual Report to Stockholders filed herein as Exhibit 13,
which portion of such Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company including the independent
auditor's report thereon of the Company's 1994 Annual Report to Stockholders
filed herein as Exhibit 13, are incorporated herein by reference.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
This information is set forth under the captions "Nominees for
Election as Directors" and "Executive Officers" of the
-20-
23
Company's Proxy Statement for the Company's Annual Meeting of Stockholders.
Item 11. Executive Compensation.
This information is set forth under the caption "Executive
Compensation" of the Company's Proxy Statement for the Company's Annual Meeting
of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This information is set forth under the caption "Outstanding Capital
Stock" of the Company's Proxy Statement for the Company's Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions.
This information is set forth under the caption "Other Matters" of the
Company's Proxy Statement for the Company's Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) 1. The following financial statements are incorporated by reference from the Company's 1994 Annual Report
to Stockholders filed herein as Exhibit 13:
Report of Independent Accountants.
Consolidated Balance Sheets dated December 31,
1994 and 1993.
Consolidated Statement of Operations for the three
years ended December 31, 1994.
Consolidated Statement of Stockholders' Equity for
the three years ended December 31, 1994.
Consolidated Statement of Cash Flows for the three
years ended December 31, 1994.
Notes to Consolidated Financial Statements.
2. The following documents, separately bound, are filed or incorporated by reference as exhibits to this
Report:
3(a) Certificate of Incorporation of the Company as amended through the Certificate of Amendment
filed with the Delaware Secretary
-21-
24
of State on January 29, 1993 (incorporated by reference to Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
3(b) Bylaws of the Company, as amended through July 6, 1994 (incorporated by reference to Exhibit
3(b) to the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0-6247)).
10(a) Contract dated July 29, 1971 between the Company, National Mining Company and Petromin
(incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No. 0-6247)).
10(b) Loan Agreement dated January 24, 1979 between the Company, National Mining Company and the
Government of Saudi Arabia (incorporated by reference to Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(c) Form of Contract for the Exploration and Development of the Al-Ghurayyah Area entered into in
December 1982 between Petromin and the Company, National Mining Company and Red Sea Mining
Company (incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(d) Mining Lease Agreement effective May 22, 1993 by and between the Ministry of Petroleum and
Mineral Resources and the Company, together with English translation thereof (incorporated by
reference to Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No. 0-6247)).
10(e) Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 10(e) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File
No. 0-6247)).
-22-
25
10(f) 1987 Non-Employee Director Stock Plan (incorporated by reference to Exhibit 10(f) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No.
0-6247)).
10(g) Phantom Stock Plan of Texas Oil & Chemical Co. II, Inc. (incorporated by reference to Exhibit
10(g) to the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0-6247)).
10(h) Amended and Restated Credit Agreement dated December 13, 1990 between South Hampton Refining
Company and Den norske Bank AS, together with related Promissory Note, Cash Collateral Account
Agreement, Subordination Agreement and Intercreditor Agreement, all of even date therewith
(incorporated by reference to Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No. 0-6247)).
10(i) Second Lien Promissory Note dated July 28, 1989 from South Hampton Refining Company to American
Shield Refining Company (incorporated by reference to Exhibit 10(i) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(j) Subordination Agreement dated July 28, 1989 by and among Texas Oil and Chemical Co. II, Inc.,
South Hampton Refining Company, Gulf States Pipe Line Company, the Company, American Shield
Refining Company and den Norske Creditbank (incorporated by reference to Exhibit 10(j) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No.
0-6247)).
10(k) Amendment No. 1 and Amendment No. 2 to Amended and Restated Credit Agreement dated March 15,
1991 and December 31, 1991, respectively, between South Hampton Refining Company and Den norske
Bank AS, together with related Guaranty dated as of December 31, 1991, by Texas Oil & Chemical
Co. II, Inc. in favor of Den norske Bank AS, Pledge Agreement and Irrevocable Proxy dated as of
December 31, 1991, between Texas Oil &
-23-
26
Chemical Co. II, Inc. and Den norske Bank AS and Pledge Agreement and Irrevocable Proxy dated
as of December 31, 1991, between South Hampton Refining Company and Den norske Bank AS
(incorporated by reference to Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No. 0-6247)).
10(l) Letter Agreement dated February 28, 1994 by and between South Hampton Refining Company and Den
norske Bank AS (incorporated by reference to Exhibit 10(l) to the Company's Quarterly Report
on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(m) Letter Agreement dated June 2, 1994 by and between South Hampton Refining Company and Den
norske Bank AS together with related Letter Agreement dated June 2, 1994 by and between the
Company and Den norske Bank AS (incorporated by reference to Exhibit 10(m) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(n) Letter Agreement dated December 2, 1994 by and between South Hampton Refining Company and Den
norske Bank AS (incorporated by reference to Exhibit 10(n) to the Company's Quarterly Report
on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(o) Agreement dated March 10, 1988 between Chevron Research Company and South Hampton Refining
Company, together with related form of proposed Contract of Sale by and between Chevron
Chemical Company and South Hampton Refining Company (incorporated by reference to Exhibit
10(o) to the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0-6247)).
10(p) Addendum to the Agreement Relating to AROMAX Process - Second Commercial Demonstration dated
June 13, 1989 by and between Chevron Research Company and South Hampton Refining Company
(incorporated by reference to Exhibit 10(p) to the Company's Quarterly
-24-
27
Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(q) Vehicle Lease Service Agreement dated September 28, 1989 by and between Silsbee Trading and
Transportation Corp. and South Hampton Refining Company (incorporated by reference to Exhibit
10(q) to the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0-6247)).
10(r) Agreement for Purchase of Feedstock dated July 1, 1992 by Silsbee Trading and Transportation
Corp. and South Hampton Refining Company (incorporated by reference to Exhibit 10(r) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No.
0-6247)).
10(s) One-Year Adjustable Interest Rate Note dated February 1, 1995, effective December 31, 1994,
from Texas Oil & Chemical Co. II, Inc. to Silsbee State Bank, together with Deed of Trust of
even date therewith (incorporated by reference to Exhibit 10(s) to the Company's Quarterly
Report on Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
10(t) Letter Agreement dated May 3, 1991 between Sheikh Kamal Adham and the Company (incorporated by
reference to Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No. 0-6247)).
10(u) Promissory Note dated February 17, 1994 from Hatem El-Khalidi to the Company (incorporated by
reference to Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No. 0-6247)).
10(v) Lease Agreement dated as of August 13, 1993 by and among Pioche-Ely Valley Mines, Inc.,
Minerals Processing, Inc. and World Hydrocarbons, Inc. (incorporated by reference to Exhibit
10(v) to the Company's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0-6247)).
-25-
28
10(w) Letter Agreement dated March 27, 1995 between Carlyle (SEAG) and the Company.
13 1994 Annual Report to Stockholders. With the exception of the information incorporated by
reference into Items 5,6,7,8 and 14 of this Form 10-K, the 1994 Annual Report to Stockholders
is not to be deemed filed as part of this Report.
21 Subsidiaries (incorporated by reference to Exhibit 21 to the Company's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 1994 (File No. 0-6247)).
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this Report.
-26-
29
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Arabian Shield Development
Company, a Delaware corporation, and the undersigned directors and officers of
Arabian Shield Development Company, hereby constitutes and appoints John A.
Crichton its or his true and lawful attorney-in-fact and agent, for it or him
and in its or his name, place and stead, in any and all capacities, with full
power to act alone, to sign any and all amendments to this Report, and to file
each such amendment to the Report, with all exhibits thereto, and any and all
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
or he might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARABIAN SHIELD DEVELOPMENT COMPANY
By: /s/ Hatem El-Khalidi
---------------------------------
Hatem El-Khalidi, President
and Chief Executive Officer
Dated: March 27, 1995
-27-
30
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in the capacities indicated on March 27, 1995.
Signature Title
--------- -----
/s/ Hatem El-Khalidi President, Chief Executive
------------------------- Officer and Director (principal
Hatem El-Khalidi executive officer)
/s/ Drew Wilson Secretary and Treasurer
------------------------- (principal financial and
Drew Wilson accounting officer)
/s/ John A. Crichton Chairman of the Board and
------------------------- Director
John A. Crichton
/s/ O.W. Hammonds Director
-------------------------
Oliver W. Hammonds
_________________________ Director
Harb S. Al Zuhair
/s/ Mohammed O. Al-Omair Director
-------------------------
Mohammed O. Al-Omair
_________________________ Director
Ghazi Sultan
-28-
31
EXHIBIT INDEX
PAGE
----
3(a) Certificate of Incorporation of the Company as amended through the
Certificate of Amendment filed with the Delaware Secretary of State
on January 29, 1993 (incorporated by reference to Exhibit 3(a) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
3(b) Bylaws of the Company, as amended through July 6, 1994
(incorporated by reference to Exhibit 3(b) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1994 (File No. 0-6247)).
10(a) Contract dated July 29, 1971 between the Company, National Mining
Company and Petromin (incorporated by reference to Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No. 0-6247)).
10(b) Loan Agreement dated January 24, 1979 between the Company, National
Mining Company and the Government of Saudi Arabia (incorporated
by reference to Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(c) Form of Contract for the Exploration and Development of the
Al-Ghurayyah Area entered into in December 1982 between Petromin
and the Company, National Mining Company and Red Sea Mining
Company (incorporated by reference to Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
32
10(d) Mining Lease Agreement effective May 22, 1993 by and between the
Ministry of Petroleum and Mineral Resources and the Company,
together with English translation thereof (incorporated by
reference to Exhibit 10(d) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(e) Stock Option Plan of the Company, as amended (incorporated by
reference to Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(f) 1987 Non-Employee Director Stock Plan (incorporated by reference
to Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No. 0-6247)).
10(g) Phantom Stock Plan of Texas Oil & Chemical Co. II, Inc.
(incorporated by reference to Exhibit 10(g) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1994 (File No. 0-6247)).
10(h) Amended and Restated Credit Agreement dated December 13, 1990
between South Hampton Refining Company and Den norske Bank AS,
together with related Promissory Note, Cash Collateral Account
Agreement, Subordination Agreement and Intercreditor Agreement, all
of even date therewith (incorporated by reference to Exhibit
10(h) to the Company's Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 1994 (File No. 0-6247)).
10(i) Second Lien Promissory Note dated July 28, 1989 from South Hampton
Refining Company to American Shield Refining Company
(incorporated by reference to Exhibit 10(i) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1994 (File No. 0-6247)).
33
10(j) Subordination Agreement dated July 28, 1989 by and among Texas Oil
and Chemical Co. II, Inc., South Hampton Refining Company, Gulf
States Pipe Line Company, the Company, American Shield Refining
Company and den Norske Creditbank (incorporated by reference to
Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1994 (File No. 0-6247)).
10(k) Amendment No. 1 and Amendment No. 2 to Amended and Restated Credit
Agreement dated March 15, 1991 and December 31, 1991, respectively,
between South Hampton Refining Company and Den norske Bank AS,
together with related Guaranty dated as of December 31, 1991, by
Texas Oil & Chemical Co. II, Inc. in favor of Den norske Bank AS,
Pledge Agreement and Irrevocable Proxy dated as of December 31,
1991, between Texas Oil & Chemical Co. II, Inc. and Den norske Bank
AS and Pledge Agreement and Irrevocable Proxy dated as of December
31, 1991, between South Hampton Refining Company and Den norske
Bank AS (incorporated by reference to Exhibit 10(k) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(l) Letter Agreement dated February 28, 1994 by and between South
Hampton Refining Company and Den norske Bank AS (incorporated by
reference to Exhibit 10(l) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(m) Letter Agreement dated June 2, 1994 by and between South Hampton
Refining Company and Den norske Bank AS, together with related
Letter Agreement dated June 2, 1994 by and between the Company and
Den norske Bank AS (incorporated by reference to Exhibit 10(m) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
34
10(n) Letter Agreement dated December 2, 1994 by and between South
Hampton Refining Company and Den norske Bank AS (incorporated by
reference to Exhibit 10(n) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(o) Agreement dated March 10, 1988 between Chevron Research Company and
South Hampton Refining Company, together with related form of
proposed Contract of Sale by and between Chevron Chemical Company
and South Hampton Refining Company (incorporated by reference to
Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1994 (File No. 0-6247)).
10(p) Addendum to the Agreement Relating to AROMAX Process - Second
Commercial Demonstration dated June 13, 1989 by and between Chevron
Research Company and South Hampton Refining Company (incorporated
by reference to Exhibit 10(p) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).
10(q) Vehicle Lease Service Agreement dated September 28, 1989 by and
between Silsbee Trading and Transportation Corp. and South Hampton
Refining Company (incorporated by reference to Exhibit 10(q) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(r) Agreement for Purchase of Feedstock dated July 1, 1992 by Silsbee
Trading and Transportation Corp. and South Hampton Refining
Company (incorporated by reference to Exhibit 10(r) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
35
10(s) One-Year Adjustable Interest Rate Note dated February 1, 1995,
effective December 31, 1994, from Texas Oil & Chemical Co. II, Inc.
to Silsbee State Bank, together with Deed of Trust of even date
therewith (incorporated by reference to Exhibit 10(s) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(t) Letter Agreement dated May 3, 1991 between Sheikh Kamal Adham and
the Company (incorporated by reference to Exhibit 10(t) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(u) Promissory Note dated February 17, 1994 from Hatem El-Khalidi to
the Company (incorporated by reference to Exhibit 10(u) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(v) Lease Agreement dated as of August 13, 1993 by and among Pioche-Ely
Valley Mines, Inc., Minerals Processing, Inc. and World
Hydrocarbons, Inc. (incorporated by reference to Exhibit 10(v) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
10(w) Letter Agreement dated March 27, 1995 between Carlyle (SEAG) and
the Company.
13 1994 Annual Report to Stockholders. With the exception of the
information incorporated by reference into Items 5, 6, 7, 8 and
14 of this Form 10-K, the 1994 Annual Report to Stockholders is
not to be deemed filed as part of this Report.
21 Subsidiaries (incorporated by reference to Exhibit 21 to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).
27 Financial Data Schedule.