ARABIAN SHIELD DEVELOPMENT CO, DEF 14A, 1996-04-01

ARABIAN SHIELD DEVELOPMENT CO
DEF 14A, 1996-04-01
PETROLEUM REFINING

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

ARABIAN SHIELD DEVELOPMENT COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
ARABIAN SHIELD DEVELOPMENT COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------
(5) Total fee paid:

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

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- --------------------------------------------------------------------------------
(3) Filing Party:

- --------------------------------------------------------------------------------
(4) Date Filed:

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<PAGE> 2

ARABIAN SHIELD DEVELOPMENT COMPANY
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 6, 1996

To the Stockholders of ARABIAN SHIELD DEVELOPMENT COMPANY

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Arabian
Shield Development Company (the "Company"), a Delaware corporation, will be held
on Monday, May 6, 1996, at 10:00 a.m., Dallas time, in Meeting Room One, at
Republic Towers, Tower III (Eighth Floor), 325 N. St. Paul, Dallas, Texas 75201,
for the following purposes:

1. Electing six (6) directors to serve until the next annual meeting
of stockholders and until their respective successors shall have been
elected and qualified; and

2. Transacting such other business as may properly come before the
meeting or any adjournment(s) thereof.

Information regarding the matters to be acted upon at the annual meeting is
contained in the Proxy Statement attached to this Notice.

Only stockholders of record at the close of business on March 18, 1996 are
entitled to notice of, or to vote at, such meeting or any adjournment(s)
thereof. A complete list of the stockholders entitled to vote at the meeting
will be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours for a period of 10 days prior to the
meeting at the corporate offices of the Company, 10830 North Central Expressway,
Suite 175, Dallas, Texas.

By Order of the Board of Directors

DREW WILSON, JR., Secretary

Dallas, Texas
April 2, 1996
<PAGE> 3

ARABIAN SHIELD DEVELOPMENT COMPANY
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231

PROXY STATEMENT

FOR

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1996

SOLICITATION OF PROXIES

The accompanying proxy is solicited by and on behalf of the Board of
Directors of Arabian Shield Development Company (the "Company") for use at the
annual meeting of stockholders of the Company to be held at Dallas, Texas, on
May 6, 1996, and at any adjournment(s) thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. Solicitation of
proxies may be made in person or by mail, telephone or telegram by directors,
officers and employees of the Company. The Company may also request banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to
forward solicitation material to the beneficial owners of Common Stock held of
record by such persons, and the Company will reimburse the forwarding expense.
All reasonable costs of preparing, printing, assembling and mailing the form of
proxy and the material used in the solicitation thereof and all clerical and
other expenses of solicitation will be paid by the Company. The approximate date
on which this Proxy Statement and form of proxy were first sent to stockholders
is April 2, 1996.

ANNUAL REPORT

The Annual Report to Stockholders, covering the fiscal year ended December
31, 1995, is enclosed herewith. The Annual Report does not form any part of the
material for solicitation of proxies.

OUTSTANDING CAPITAL STOCK

The close of business on March 18, 1996, is the record date for
determination of stockholders entitled to notice of, and to vote at, the
meeting. The stock transfer books will not be closed. At the record date, there
were outstanding and entitled to be voted 19,928,494 shares of the Common Stock,
$.10 par value, of the Company.

The following table sets forth, as of March 18, 1996, information as to the
beneficial ownership of the Company's Common Stock by each person known by the
Company to beneficially own more than 5% of the Company's outstanding Common
Stock, by each of the Company's executive officers named in the Summary
Compensation Table set forth below and by all directors and executive officers
of the Company as a group.

<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED(1) OF CLASS
------------------------------------------------------------ ------------ --------
<S> <C> <C>
Prince Talal Bin Abdul Aziz 1,500,000 7.5%
P.O. Box 930
Riyadh, Saudi Arabia
Mohammad Salem Ben Mahfouz 1,500,000 7.5%
c/o National Commercial Bank
Jeddah, Saudi Arabia
Hatem El-Khalidi 609,000(4) 3.0%
10830 North Central Expressway
Suite 175
Dallas, Texas 75231
All directors and executive officers as a group (8 persons) 2,049,150(5) 10.0%
</TABLE>

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

* Less than 1%

(1) Unless otherwise indicated, to the knowledge of the Company, all shares are
owned directly and the owner has sole voting and investment power.

(2) Includes 10,000 shares which Mr. Al Zuhair has the right to acquire through
the exercise of a presently exercisable stock option.

(3) Include 245,000 shares which Mr. Al-Athel has the right to acquire through
the exercise of a presently exercisable stock option.

(4) Includes 478,000 shares which Mr. El-Khalidi has the right to acquire
through the exercise of presently exercisable stock options. Excludes
385,000 shares owned by Ingrid El-Khalidi, Mr. El-Khalidi's wife, and
685,000 shares owned by relatives of Hatem El-Khalidi. See "Other Matters."

(5) Includes 593,500 shares which certain directors and executive officers have
the right to acquire through the exercise of stock options or other rights
exercisable presently or within 60 days. Excludes 385,000 shares owned by
Ingrid El-Khalidi, the wife of Hatem El-Khalidi, the President, Chief
Executive Officer and a director of the Company, and 685,000 shares owned
by relatives of Hatem El-Khalidi.

Based on its stock ownership records, the Company believes that as of March
18, 1996, excluding its President and his wife, who reside in Saudi Arabia,
Saudi Arabian stockholders currently hold approximately 62% of the Company's
outstanding Common Stock, without giving effect to the exercise of presently
exercisable stock options held by certain of such stockholders. Accordingly, if
all or any substantial part of the Saudi Arabian stockholders were considered as
a group, they could be deemed to "control" the Company as that term is defined
in regulations promulgated by the Securities and Exchange Commission. Although
they have orally waived their rights, certain of the Company's Saudi Arabian
stockholders are parties to written agreements providing them with the right to
purchase their proportionate share of additional shares sold by the Company.

In connection with the sale of Common Stock to Sheik Fahad Al-Athel and Mr.
Harb S. Al Zuhair in 1989, the Company agreed to nominate Mr. Al Zuhair for
election to the Board of Directors. In connection with an increase in the number
of positions on the Board of Directors in 1993, at the request of Sheik Fahad
Al-Athel, the Company appointed Mohammed Al-Omair to fill one of the
newly-created vacancies. See "Nominees for Election as Directors."

Several of the Company's Saudi stockholders also have been or are currently
connected with National Mining Company, the Saudi company with which the Company
jointly held certain of its mineral exploration licenses in Saudi Arabia. Sheik
Kamal Adham, a stockholder of the Company, is currently the Vice Chairman of
National Mining. The Company believes that Prince Khaled Bin Abdullah Bin Abdul
Rahman, formerly the President of National Mining, also has an ownership
interest in National Mining.

2
<PAGE> 5

The management of the Company has welcomed the substantial stock investment
by its Saudi stockholders. Saudi investors have contributed vitally needed
capital to the Company since 1974. Whether the Company's Saudi stockholders will
be a continuing source of future capital is not known at this time. In
confronting the need for additional funds, management of the Company will follow
the policy of considering all potential sources consistent with prudent business
practice and the best interests of all its stockholders. In the course of
considering methods of future financing and other matters relating to the
operations of the Company, management of the Company anticipates that in the
ordinary course of business it will receive recommendations and suggestions from
its principal stockholders.

REVOCATION OF PROXY

The giving of a proxy does not preclude the right to vote in person should
the person giving the proxy so desire, and the person giving the proxy has the
power to revoke the same, at any time before it has been exercised, by notice in
writing to the Secretary of the Company.

QUORUM; VOTING

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Common Stock of the Company entitled to vote is
necessary to constitute a quorum at the meeting. If a quorum is not present or
represented at the meeting, the stockholders entitled to vote thereat, present
in person or represented by proxy, have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present or represented. Abstentions and broker non-votes are counted
in determining the presence of a quorum.

On all matters submitted to a vote at the meeting, or any adjournment(s)
thereof, each holder of Common Stock of the Company will be entitled to one
vote, in person or by proxy, for each share of such stock owned of record at the
close of business on March 18, 1996. Cumulative voting for directors is not
permitted. Directors will be elected by plurality vote at the meeting, and the
six (6) persons receiving the greatest number of votes at the meeting will be
elected as the directors of the Company. Neither abstentions nor broker
non-votes will affect the outcome of the election.

ACTION TO BE TAKEN UNDER THE PROXY

Proxies in the accompanying form which are properly executed and returned
will be voted at the meeting and any adjournment(s) thereof and will be voted,
unless the giver thereof specifies otherwise, (1) for the election of the six
(6) persons named in the next succeeding table as nominees for election as
directors of the Company to serve until the next annual meeting of stockholders
and until their respective successors shall have been elected and qualified; and
(2) in the transaction of such other business as may properly come before the
meeting or any adjournment(s) thereof.

Should any nominee named herein for the office of director become unwilling
to accept nomination or election, it is intended that the persons acting under
the proxy will vote for the election, in his stead, of such other person as the
management of the Company may recommend. Management has no reason to believe
that any of the nominees will be unable or unwilling to serve if elected.
Management knows of no matters, other than the foregoing, to be presented for
consideration at the meeting. If, however, any other matters properly come
before the meeting or any adjournment(s) thereof, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
judgment on any such matters.

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<PAGE> 6

NOMINEES FOR ELECTION AS DIRECTORS

Six (6) directors will be elected at the annual meeting. Each director
elected will serve until his successor has been elected and qualified. The six
(6) persons named below are management's nominees for election as directors.
Each nominee named below is presently a director of the Company and has served
as such since the date of election indicated. In connection with the sale of
shares of Common Stock to Sheik Fahad Al-Athel and Harb S. Al Zuhair in 1989,
the Company agreed to nominate Mr. Al Zuhair for election to the Board of
Directors. In connection with an increase in the number of positions on the
Board of Directors in 1993, at the request of Sheik Fahad Al-Athel, the Company
appointed Mohammed O. Al-Omair, who had served as a director of the Company from
November 1989 to March 1991, to fill one of the newly-created vacancies. There
are presently seven (7) director positions on the Board, however only six (6)
persons are nominated for election as directors. The stockholders entitled to
vote at the annual meeting will be permitted to vote for six (6) persons for
election as directors. Further information with respect to each nominee is set
forth in the following table:

<TABLE>
<CAPTION>
SHARES
OF COMMON
STOCK OF THE
COMPANY
OWNED
BENEFICIALLY AT
NAME; BUSINESS EXPERIENCE; DATE OF MARCH 18, PERCENT
OTHER DIRECTORSHIPS AGE ELECTION 1996(1) OF CLASS
- --------------------------------------------------- ---- ----------- --------------- --------
<S> <C> <C> <C> <C>
John A. Crichton................................... 79 May 1967 59,650(2) *
Chairman of the Board of the Company since 1967;
Chief Executive Officer of the Company from 1967
to February 1994; President, Crichton & Co.
(petroleum and mining consulting and management,
Dallas, Texas)
Hatem El-Khalidi................................... 71 April 1968 609,000(3) 3.0%
President of the Company since 1975; prior to
1975 Vice President of the Company; Chief
Executive Officer of the Company since February
1994
Oliver W. Hammonds................................. 84 Jan. 1987 10,000(4) *
Attorney-at-law and private investments
Harb S. Al Zuhair.................................. 57 Nov. 1989 1,310,000(5) 6.6%
Chairman and Chief Executive Officer of TETRAD
Development Co., Ltd., Riyadh, Saudi Arabia
(investments)
Mohammed O. Al-Omair............................... 52 May 1993 4,000(6) *
(Executive Vice President, Saudi Fal Group of
Companies, Riyadh, Saudi Arabia since 1985
(investments); President, Advanced Systems Ltd.,
Riyadh, Saudi Arabia since 1985 (mainframe
computers)
Ghazi Sultan....................................... 59 Sept. 1993 4,000(7) *
Chairman, Sultan Group of Companies, Jeddah,
Saudi, Arabia since 1987 (investments and marble
mining); Director General, Safwah Company,
Jeddah, Saudi, Arabia since 1987 (investments);
Deputy Minister of Petroleum and Mineral
Resources of the Kingdom of Saudi Arabia
1966-1987
</TABLE>

4
<PAGE> 7

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

* Less than 1%

(1) Unless otherwise indicated, all shares are owned directly and the owner has
sole voting and investment power.

(2) Includes 45,000 shares which Mr. Crichton has the right to acquire through
the exercise of presently exercisable stock options.

(3) Includes 478,000 shares which Mr. El-Khalidi has the right to acquire
through the exercise of presently exercisable stock options. Excludes
385,000 shares owned by Ingrid El-Khalidi, Mr. El-Khalidi's wife, and
685,000 shares owned by relatives of Hatem El-Khalidi. See "Other Matters."

(4) Represents 10,000 shares which Mr. Hammonds has the right to acquire through
the exercise of a presently exercisable stock option.

(5) Includes 10,000 shares which Mr. Al Zuhair has the right to acquire through
the exercise of a presently exercisable stock option. See "Outstanding
Capital Stock" for information regarding Mr. Al Zuhair's nomination for
election to the Board of Directors.

(6) Includes 4,000 shares which Mr. Al-Omair has the right to acquire through
the exercise of a presently exercisable stock option.

(7) Includes 4,000 shares which Mr. Sultan has the right to acquire through the
exercise of a presently exercisable stock option.

The Board of Directors of the Company has an Audit Committee which is
currently composed of Messrs. Harb S. Al Zuhair and Ghazi Sultan. The Committee
held one meeting during 1995. The functions performed by the Audit Committee
include (i) reviewing and approving the scope of the annual audit of the Company
and (ii) periodically interviewing the Company's independent public accountants
in order to analyze the strengths and weaknesses of its financial staff and
systems and the adequacy of its internal controls.

The current members of the Compensation Committee of the Board are Messrs.
Harb S. Al Zuhair and Ghazi Sultan. The Committee held one meeting during 1995.
The functions performed by the Compensation Committee include (i) periodically
reviewing the compensation paid to officers and key employees of the Company and
making recommendations to the Board of Directors concerning such compensation
and (ii) administering the Company's Stock Option Plan.

The Board of Directors of the Company has an Executive Committee comprised
of four directors, Messrs. El-Khalidi, Al Zuhair, Al-Omair and Sultan. The
Executive Committee held one meeting during 1995. The Executive Committee is
primarily responsible for overseeing and managing construction of the Al Masane
mining project in Saudi Arabia.

The Company's Board of Directors held two meetings during 1995. Each
director attended during the year (or the part of the year that he served as a
director or a member of a committee) at least 75% of the aggregate of (i) the
total number of meetings held by the Board and (ii) the total number of meetings
held by all committees on which he served.

5
<PAGE> 8

EXECUTIVE OFFICERS

Each executive officer of the Company serves for a term extending until his
successor is elected and qualified. The current executive officers of the
Company are John A. Crichton, Chairman of the Board, Hatem El-Khalidi, President
and Chief Executive Officer, Drew Wilson, Jr., Secretary and Treasurer, and
Nicholas N. Carter, President of Texas Oil and Chemical Co. II, Inc., a
wholly-owned subsidiary of the Company ("TOCCO II"). Mr. Crichton and Mr.
El-Khalidi also serve as directors of the Company. Information concerning
Messrs. Crichton and El-Khalidi is set forth under "Nominees for Election as
Directors." Mr. Wilson, who works for the Company on a part-time basis, is 62
years old and is a certified public accountant. Mr. Wilson has served as
Secretary and Treasurer of the Company since November 1986, and has worked as an
independent public accountant since 1975. Mr. Carter, who is 49 years old, has
been President of TOCCO II and its subsidiaries since 1987, prior to which time
he served from October 1983 as Treasurer and Controller of those companies. Mr.
Carter has been employed by TOCCO II and its subsidiaries since 1977.

Section 16(a) of the Securities Exchange Act 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.

To the best of the Company's knowledge, during the fiscal year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with; except that Mr. Al Zuhair failed to file on a timely basis one required
report relating to one transaction. This transaction was not reported on a
year-end Form 5.

EXECUTIVE COMPENSATION

The following information summarizes annual compensation for services in
all capacities to the Company for the fiscal years ended December 31, 1995, 1994
and 1993 of the Chief Executive Officer and the other four most highly
compensated executive officers of the Company:

SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- -----------
--------------------------------- RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PLAN COMPENSATION
PRINCIPAL POSITION(1) YEAR ($)(2) ($) ($) ($) SARS(#) PAYOUTS($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Hatem El-Khalidi, 1995 $72,000 -- -- -- -- -- $8,000
President and Chief Executive 1994 $72,000 -- -- -- -- -- $8,000
Officer 1993 $72,000 -- -- -- -- -- $8,000
</TABLE>

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

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

(1) No executive officer of the Company had total annual salary and bonus in
excess of $100,000 during the fiscal year ended December 31, 1995.

(2) Includes $45,068, $49,621 and $57,819 compensation for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995,
respectively, that was deferred at the election of Mr. El-Khalidi.

(3) Includes $8,000 in termination benefits for each of the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995, respectively,
that was accrued for Mr. El-Khalidi in accordance with Saudi Arabian
employment laws.

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<PAGE> 9

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table shows information concerning options to purchase the
Company's Common Stock granted during the fiscal year ended December 31, 1995 to
the executive officers named in the Summary Compensation Table:

<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR(3) ($/SH) DATE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Hatem El-Khalidi........ 53,000(1) 11.7% $1.00 08/15/00
400,000(2) 88.3% $1.00 *(2)
- ------------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) Represents an option held by Mr. El-Khalidi to convert the principal amount
and all accrued interest on a $53,000 note into shares of the Company's
Common Stock at the rate of $1.00 per share. See "Other Matters."

(2) Represents an option held by Mr. El-Khalidi to convert $400,000 of deferred
compensation for services rendered to the Company into shares of the
Company's Common Stock at the rate of $1.00 per share. The option is
exercisable by Mr. El-Khalidi at any time and does not have an expiration
date. The amount of deferred compensation owed to Mr. El-Khalidi on December
31, 1995 was $439,737. See "Other Matters."

(3) Indicates the percentage which the total number of shares represented by the
option granted to the executive officer bears to the total number of shares
represented by the options granted to all employees during the fiscal year
ended December 31, 1995.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

The following table shows information concerning the exercise of stock
options during the fiscal year ended December 31, 1995 by the executive officers
named in the Summary Compensation Table and the estimated value of unexercised
options held by such individuals at year-end:

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Hatem El-Khalidi...... 0 0 478,000 $ 0/0
- -----------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) Based on the closing price of $.81 of the Company's Common Stock on the
NASDAQ National Market System on December 29, 1995.

In accordance with Saudi Arabian employment laws, the Company is required
to accrue termination benefits for Mr. El-Khalidi. The amount accrued for the
benefit of Mr. El-Khalidi is based on the number of years of service and
compensation. Accrued benefits are payable upon termination of employment.

The Company has engaged in other transactions and entered into other
arrangements, directly or indirectly, with its officers and directors, the
primary purpose of certain of which was to provide additional compensation to
such persons. See "Other Matters."

The Company is authorized to pay its non-employee directors a fee of $200
for each Board meeting and $100 for each Committee meeting which they attend, in
addition to reimbursing them for expenses incurred in

7
<PAGE> 10

connection with their attendance. At December 31, 1995, the payment of $2,000 in
director fees to two former directors had been deferred until the Company's cash
flow improves.

OTHER MATTERS

The Company beneficially owns approximately 55%, and directly owns
approximately 46%, of the outstanding capital stock of Pioche-Ely Valley Mines,
Inc., a company that owns a mill and 132 inactive mining claims covering
approximately 3,700 acres located in southeast Nevada. Mr. John A. Crichton is
currently a director and President of Pioche-Ely Valley. The Company is
providing the funds necessary to cover the Pioche-Ely Valley operations. During
1994 and 1995, the Company made payments of approximately $40,000 and $18,000,
respectively, for such purposes. As partial consideration for the forgiveness of
indebtedness, in July 1990 Pioche-Ely Valley granted the Company an option to
purchase an additional 720,000 shares of its Common Stock at an exercise price
of $.20 per share, which option is exercisable until June 1, 1997. As of
December 31, 1995, Pioche-Ely Valley owed the Company $146,058 as a result of
advances made by the Company. The indebtedness bears no interest.

Pursuant to a sharing arrangement, the Company and its subsidiaries share
personnel and office space in the northern part of Dallas, Texas with Dallas
Resources, Inc., together with other overhead expenses on such space. Monthly
rental on the office space is approximately $2,200. The Company pays Dallas
Resources, Inc. $1,000 per month for rent and $400 per month for personnel and
other overhead expenses pursuant to such arrangement. Mr. John A. Crichton,
Chairman of the Board of the Company, owns 100% of the outstanding capital stock
of Dallas Resources, Inc.

During 1995, South Hampton Refining Company, a wholly-owned subsidiary of
TOCCO II ("South Hampton"), incurred product transportation costs of
approximately $316,000 with Silsbee Trading and Transportation Corp. ("STTC"), a
private trucking and transportation carrier in which Nicholas N. Carter, the
President of TOCCO II, and Richard Crain, Vice President of TOCCO II, each have
a 50% equity interest. Pursuant to a lease agreement, South Hampton leases
transportation equipment from STTC at a rate of approximately $29,000 per month,
subject to adjustment. Under the lease arrangement, STTC provides the
transportation equipment and all normal maintenance on such equipment and South
Hampton provides the drivers, fuel, management of transportation operations and
insurance on the transportation equipment. Approximately 90% of STTC's income
will be derived from such lease arrangement. The Company believes that the terms
of the lease arrangement are no less favorable in any material respect than
those which could be obtained from an unaffiliated third party. The lease
agreement is currently operating on a month-to-month basis while renewal options
are being evaluated.

In August 1995, South Hampton's agreement with STTC whereby STTC would
assist South Hampton in maintaining its refinery throughput rate by providing
feedstock inventory for pipeline fill on its eight-inch pipeline was terminated.
The cost to South Hampton for STTC providing feedstock inventory availability
was one-half cent per gallon. The volume of feedstock STTC carried for this
purpose was 453,600 gallons, which is the capacity of the pipeline. Under the
terms of this agreement, South Hampton was required to compensate STTC for any
loss in the market value of the feedstock while the agreement was in effect. At
the termination of this agreement, South Hampton purchased the inventory from
STTC at $.4735 per gallon. During 1995, a total of $76,080 was paid to STTC
under this agreement.

South Hampton is indebted to Saudi Fal Holding Group, a company owned by
Sheik Fahad Al-Athel, a stockholder of the Company, in the amount of $1,500,000
as a result of the draw down by Den norske Bank AS of a letter of credit
provided by Saudi Fal Holding Group for its guarantee of TOCCO II's letter of
credit facility. Mohammed O. Al-Omair, a director of the Company, is an
executive officer of the Fal Group of Companies which owns all of the capital
stock of Saudi Fal Holding Group.

As of December 31, 1995, the Company was indebted to Sheik Kamal Adham, a
stockholder of the Company and Vice Chairman of National Mining Company, the
company with which the Company jointly held certain of its exploration licenses
in Saudi Arabia, in the amount of $13,279, such amount representing loans made
by Sheik Adham to the Company. Effective as of September 13, 1995 and December
19, 1995, the

8
<PAGE> 11

Board of Directors approved the issuance of 123,000 and 155,000 shares of the
Company's Common Stock, respectively, in exchange for cancellation of $278,000
of the Company's the outstanding indebtedness. The market price of the Company's
Common Stock on September 13, 1995 and December 19, 1995 was $1.25 and $.88 per
share, respectively.

In May 1993, the Company had discussions with Chevron Chemical Company
regarding the Company's proposal to purchase feedstock from an Aromax(R) plant
to be built in Jubail, Saudi Arabia by Chevron Chemical and Saudi Venture
Capital Group (SVCS). The Company and some Saudi joint venture partners,
including Harb S. Al Zuhair, Sheik Kamal Adham, Prince Talal, Sheik Fahad
Al-Athel, Ghazi Sultan, Mohammed Salem Ben Mahfouz and Mohammed O. Al-Omair,
contemplate building a processing plant next to the Aromax(R) plant in Saudi
Arabia. As proposed, the Company would have a 25% interest in the joint venture.
Planning had begun toward the construction and operation of the Aromax(R) plant
and the joint venture's processing plant but was delayed during 1995 because of
the absence of a firm commitment for the feedstock supply to the Aromax(R)
plant. The Company will begin applying to the Saudi government for a license for
the project when the Aromax(R) project receives final approval from the Saudi
government.

On February 17, 1994, the Board of Directors approved the consolidation of
two notes payable by Hatem El-Khalidi, President and Chief Executive Officer of
the Company, 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. The note was not paid on December 31, 1995 and its maturity has been
extended to December 31, 1998.

On March 27, 1995, the Board of Directors approved a modification of the
payment schedule for the $100,000 balance owed to the Company on the exercise of
a stock option by Trust Investment & Development Est., a private Saudi company
owned by Mr. Harb Al Zuhair, a director of the Company, to provide for the
payment of such amount in two equal installments on May 8, 1995 and August 8,
1995. The $100,000 was not paid by August 8, 1995 and this portion of the
stockholder receivable was cancelled.

In October 1995, the Board of Directors granted Hatem El-Khalidi, President
and Chief Executive Officer of the Company, an option to convert $400,000 of
deferred compensation for services rendered to the Company into shares of the
Company's Common Stock at the rate of $1.00 per share. The option is exercisable
by Mr. El-Khalidi at any time and does not have an expiration date. The amount
of deferred compensation owed to Mr. El-Khalidi on December 31, 1995 was
$439,737.

On August 15, 1995, September 13, 1995, October 28, 1995 and December 6,
1995, the Company received loans in the amounts of $53,000, $123,000, $245,000
and $300,000 from Hatem El-Khalidi, Sheik Kamal Adham, Sheik Fahad Al-Athel and
Dr. Ibrahim Khalidi, a stockholder of the Company and cousin of Mr. El-Khalidi,
respectively. The loans, which bear interest at LIBOR plus 2%, are payable on
demand two years after the date thereof. Each lender has the option for a period
of five years from the date of the loan of electing to convert the principal
amount of their loan and all accrued interest into shares of the Company's
Common Stock at the rate of $1.00 per share. One of such lenders, Sheik Kamal
Adham, has exercised the option relating to his note.

INDEPENDENT PUBLIC ACCOUNTANTS

The Company has selected Price Waterhouse LLP to audit and report on the
financial statements of the Company and the Al Masane project for the current
fiscal year. Representatives of Price Waterhouse LLP are expected to be present
at the annual meeting with an opportunity to make a statement if they so desire,
and they are expected to be available to respond to appropriate questions.

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STOCKHOLDERS' PROPOSALS

Any proposal by a stockholder of the Company intended to be presented at
the 1996 annual meeting of stockholders, which is currently scheduled for May 5,
1997, must be received by the Company at its principal executive office no later
than December 1, 1996 for inclusion in the Company's Proxy Statement and form of
proxy. Any such proposal must also comply with the other requirements of the
proxy solicitation rules of the Securities and Exchange Commission.

By Order of the Board of Directors

DREW WILSON, JR., Secretary

THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 1995, UPON THE WRITTEN REQUEST
OF ANY PERSON WHO WAS A STOCKHOLDER (OF RECORD OR BENEFICIALLY) AT THE CLOSE OF
BUSINESS ON MARCH 18, 1996. REQUESTS FOR SUCH REPORT SHOULD BE DIRECTED TO THE
COMPANY AT 10830 NORTH CENTRAL EXPRESSWAY, SUITE 175, DALLAS, TEXAS 75231,
ATTENTION: LETTY EDES.

10
<PAGE> 13

[ X ] Please mark your
votes as in this
example

<TABLE>
<S> <C> <C> <C> <C>
WITHHOLD NOMINEES: J. A. Crichton 2. In their discretion on any other
FOR AUTHORITY H. El-Khalidi matter that may properly come
1. Election of [ ] [ ] O. W. Hammonds before the meeting or any
directors H. S. Al Zuhair adjournment thereof.
M. O. Al-Omair
For, except vote withheld from the following nominee(s): G. Sultan THIS PROXY WILL BE VOTED AS DIRECTED
ABOVE. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1.
- --------------------------------------------------------

IMPORTANT: You are encouraged to
attend this meeting in person, but
if you cannot do so, please
complete, date and sign this proxy
and mail it promptly in the enclosed
return envelope.
</TABLE>

SIGNATURE(S)____________________________________ DATE__________________

Please date this proxy and sign your name exactly as it appears hereon. Where
there is more than one owner, each should sign. When signing as an agent,
attorney, administrator, executor, guardian or trustee, please add your title
as such. If executed by a corporation, the proxy should be signed by a duly
authorized officer who should indicate his title. Please date, sign and mail
this proxy as soon as possible. No postage is required if mailed in the
United States.

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

P R O X Y

ARABIAN SHIELD DEVELOPMENT COMPANY

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of ARABIAN SHIELD DEVELOPMENT COMPANY (the "Company")
to be held on May 6, 1996, and the Proxy Statement in connection therewith, and
(2) appoints John A. Crichton and Hatem El-Khalidi, and each of them (acting
jointly, or if only one be present, then by that one alone), his attorneys and
proxies, with full power of substitution to each, to vote all shares of Common
Stock of the Company of the undersigned at said meeting and at any adjournment
thereof, as follows:

(Continued on other side)