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Executives

Nicholas N. Carter - Chairman, Chief Executive Officer, President, Chief Operating Officer and President of Texas Oil & Chemical Co II Inc

Charles W. Goehringer - General Counsel

Connie J. Cook - Chief Financial Officer, Treasurer and Secretary

Arabian American Development Company (ARSD) Annual Shareholder Meeting June 5, 2013 11:00 AM ET

Nicholas N. Carter

All right. Ladies and gentlemen, this meeting has come to order in accordance with the by laws of the company. As President and CEO and Director of the company and duly authorized Acting Chairman of the meeting. Connie Cook, Secretary of the company, will keep the minutes of the meeting.

On behalf of the directors and officers, I welcome all of you. We're pleased to have you here and hope that you enjoy this meeting. Mr. Charles Goehringer, company Counsel, will read the Safe Harbor statement.

Charles W. Goehringer

Statements from this presentation which are not historical facts are forward-looking statements classified in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's beliefs as well as assumptions made by information currently available to management. Since such statements are based upon expectations of future economic performance that are not statements of fact, actual results may differ from those projected. These risks [indiscernible] are discussed in greater detail on the Arabian American filing with the Securities and Exchange Commission, including Arabian American Annual Form 10-K for the year ended December 31, 2012 and in the company's subsequent quarterly reports filed with the SEC.

Nicholas N. Carter

At this time, I would like to introduce our directors, officers and other representatives. The directors in attendance are Mr. Joseph P. Palm. He joined the Board in 2011 and serves as Nominating Committee Chair; Mr. Gary K. Adams, our most recent addition. He joined the Board in 2012.

Unable to attend today's meetings were Mr. Ghazi Sultan who resides in Saudi Arabia, joined the board in 1993 and serves on the Board of AMAK; Mr. Allen P. McKee who lives in San Francisco, joined the Board in 2009, serves as Compensation Committee Chair, and he is also on the Board of AMAK where he serves as the Chairman of the Audit Committee; and Mr. John Dick Townsend who joined the board in 2011 and serves as Audit Committee Chair.

Officers in attendance are myself, I'm President and CEO, of course; the Executive Vice President, Simon Upfill-Brown; CFO and Secretary, Ms. Connie Cook; Vice President of Marketing is Mark D. Williamson; and Vice President of Manufacturing is Ronald R. Franklin.

Also in attendance are Company Counsel, Charles Goehringer Jr. of Germer Gertz LLP in Beaumont Texas; agent partner Rick Sowan and partner Trey Kennedy of BKM Sowan LLP, our independent registered public accounting firm; and relationship manager, Brenda Baril, of Computershare, our transfer agent.

In accordance with the by-laws, the Board of Directors has fixed the close of business on April 17, 2013, as of record date for the determination of stockholders entitled to notice of and to vote at this meeting. Miss Cook, will you present a list of the stockholders of the company?

Connie J. Cook

I present to this meeting a complete list of stockholders entitled to vote at this meeting, alphabetically arranged, as of the close of business on April 17, 2013, this being the record date set for the meeting by the Board of Directors.

Nicholas N. Carter

I appoint Brenda Baril of Computershare, the company's transfer agent, to inspect proxies, canvass the meeting and report upon the existence of a quorum and as election judge to conduct the vote on the proposals to be voted upon.

We have undertaken to have each of you sign an attendance sheet in order to determine how many shares and stock are represented at this meeting and who wishes to vote in person. If there are any of you who intend to file a proxy and have not done so or who wish to vote your shares in person but have not yet signed a card indicating that you intend to do so, please do so in order that the election judge can determine the total number of shares represented in person at this meeting.

I now call upon the election judge to inspect the proxies and qualifications of the stockholders present and to report on the total number of shares of the company present in person or by proxy entitled to vote at this meeting. While the election judge is making her determination, Ms. Cook, will you, as secretary, present evidence to show that notice of this meeting was properly given to all stockholders of record as of the close of business on April 17, 2013?

Connie J. Cook

I present to this meeting the following documents relating to the calling and convening of this annual meeting of stockholders of the company: a notice of annual meeting of stockholders to be held on June 5, 2013 in the proxy statement; the affidavit of mailing saying that said notice and proxy statement were mailed commencing on April 24, 2013 to stockholders of record as of the close of business on April 17, 2013.

Nicholas N. Carter

I accept the documents tendered in order that they be appended as exhibits to the minutes of this meeting. I will now have the report of the election judge.

Connie J. Cook

Mr. Chairman, the election judge has determined that out of 24,105,313 shares of the common stock of the company entitled to vote at this meeting, there are presently in person or by proxy, a total of 16,220,179 shares entitled to vote, which total is sufficient for a quorum for the transaction of business at this meeting.

Nicholas N. Carter

The certified report of the election judge will be appended as an exhibit to the minutes of this meeting. As your Chairman, I find a quorum is present for the purpose of conducting the business of the meeting.

It is now in order to read the minutes to -- of the annual meeting of stockholders held on June 6, 2012, the last stockholder's meeting. However, I will entertain a motion to dispense with the reading of the minutes.

Unknown Attendee

Mr. Chairman, I move that the reading of the minutes of the June 6, 2012 meeting be waived.

Unknown Attendee

Mr. Chairman, I second the motion.

Nicholas N. Carter

Are there any objections? Since there are no objections, the motion carries. One purpose of this meeting is to vote on the following proposal which the Board of Directors of the company has voted and proposed for stockholder approval. This proposal, which has been presented and explained in the proxy statement of this meeting is as follows: The election/re-election of the following persons to serve as directors for a 3-year term or until his successor has been elected and qualified, Mr. Ghazi Sultan, Gary K. Adams. I will now entertain a motion that this proposal be voted upon at this meeting.

Unknown Executive

Mr. Chairman, I move that a vote be taken on the proposal which has been presented to this meeting.

Unknown Executive

Mr. Chairman, I second the motion.

Nicholas N. Carter

Are there any objections? Since there are no objections, the motion carries.

The second purpose of this meeting is to vote on the following proposal, which the Board of Directors of the company has approved and proposed for stockholder approval. This proposal which has been presented and explained in the proxy statement of this meeting is as follows: The ratification of the Audit Committee selection of BKM Sowan Horan, LLP as the company's independent registered public accounting firm for 2013. I will now entertain a motion that this proposal be voted upon at this meeting.

Unknown Executive

Mr. Chairman, I move that a vote be taken on this -- on the proposal which has been presented to this meeting.

Unknown Executive

Mr. Chairman, I second the motion.

Nicholas N. Carter

Are there any objections? Since there are no objections, the motion carries.

The third purpose of this meeting is to vote on the following proposal, which the Board of Directors of the company has approved and proposed for stockholder approval. This proposal, which has been presented and explained in the proxy statement for this meeting is as follows: to approve by nonbinding vote the compensation of the company's named executives. I will now entertain a motion that this proposal be voted upon at this meeting.

Unknown Executive

Mr. Chairman, I move that a vote be taken on the proposal which has been presented to this meeting.

Unknown Executive

Mr. Chairman, I second the motion.

Nicholas N. Carter

Are there any objections? Since there are no objections, the motion carries.

Mr. Goehringer, will you now explain the procedures to be followed in voting?

Unknown Executive

Our by-laws provide the procedures for voting. Cumulative voting is not permitted that is each share of common stock [indiscernible] voted for as many proposal as are presented. But only 1 vote per share is permitted for each proposal. Any stockholder who has already signed or returned a proxy may not vote in person by ballot. But if he is present and wishes to withdraw a proxy to cast his ballot personally, he's privileged to do so. [indiscernible].

Nicholas N. Carter

There's no response. We will now take a few minutes to report on the activities and progress of the company.

Connie J. Cook

As a preface to my presentation, I wanted to mention that the PCAOB audit of AMAK is nearing completion. Preliminary indications are that adjustments will be needed to adjust 2012 results based upon certain timing differences between the end of 2012 and the first quarter of 2013. Estimates filed that there will be an 8% to 9% increase in EPS for 2012. However, first quarter 2013 results will also be amended included AMAK's results which are estimated to increase first quarter EPS [indiscernible] 110% to 125%. We will file an amended 10-K and first quarter 10-Q upon finalization of these numbers. This will occur no later than June 30, 2013.

Consolidated revenues for 2012 increased 12% to a record $223 million compared to $200 million for 2011. This revenue increase is primarily due to a record volume of 63.6 million gallons for the year, up from 54.3 million we recorded in 2011. We also set a new record for operating income of $17.5 million. Petrochemical product sales increased by 12.3% for 2012 compared to 2011 due to an increase in the volume of 17.1%, offset by slight decrease in the average selling price of approximately 4.1%.

For 2012, we reported net income attributable to Arabian American of approximately $11.4 million or $0.47 per basic and $0.46 per diluted share compared to $13.9 million or $0.58 per basic and $0.57 per diluted share in 2011. The 2011 numbers were restated to reflect our change to the equity method of accounting for our investment in AMAK.

2012 adjusted EBITDA was $20.9 million, up 20.8% from $16.9 million in 2011. Our balance sheet remains strong. We completed the year with $9.5 million in cash and cash provided to operations of $21.4 million. Trade receivables were $15.8 million compared to $23.2 million at year end 2011. The reduction is due to a lower sales volume during the fourth quarter of 2012.

As you will notice, our investment in AMAK is recorded at $39 million at year end 2012. This includes the restatement entries that remain in changing to the equity method of accounting. Long-term debt was approximately $15.7 million at year end 2012 compared to $24.2 million at year end 2011. Due to the cash flow generated in 2012, we made [indiscernible] payments of $8.5 million on our line of credit and term debt. Shareholders' equity increased to $83 million from $71 million at December 31, 2011.

Nicholas N. Carter

Thank you, Connie. These charts that we've got on the screen now are some of my favorite charts because they kind of show the last period of time, which is what, about 9 years, what the company has done in terms of growth in both sales revenue and sales volume. The company is really a service company. We're not producing some iPhone that's going to be a fad for 6 months and then somebody moves on to something else. We've got long-term customers. We've got long-term sales. We run our business with the view on the long-term greater than the -- what's happening tomorrow. The [indiscernible] taken 47 years to get into production was a little bit longer-term than where we'd typically shoot for. But on the other hand, I think that the charts indicate that we are building for the future with the projects that have been announced in the ethylene business, which will ultimately turn into polyethylene over the next 5 years or whatever. The outlook, the next 5 to 10 years, I think, for our company looks very good. It's up to us to keep the company positioned to take advantage of the growth that we're going to see. And we hope to keep those charts going the same direction that they are. That's what we're working for every day, is the long-term growth of the company.

On the next chart, as far as 2012 performance, actually, we had a very good year. We had record revenue of 12% to $223 million with a record volume, was up 17% to 63.6 million gallons.

Record operating income was up 28% to $17.5 million. Our International business is continuing to be strong and is still growing. Shipments increased in revenue dollars and volume. Volume was up 28%. Revenues were up 25%. This past year, we were able to expand the management team to bring a gentleman with a lot of experience in the industry. He's Mr. Simon Upfill-Brown who was named Executive VP. And since that time, April 1, he was named President of Southampton. And his task is to keep us on the right curve as far as these charts go, and he's tasked with diversifying the product line, broadening the customer base and expanding Domestic and International business.

We're very excited about the future. We're excited about the year that we had, and we're very optimistic about the years coming forward.

Unknown Executive

On this slide, near-term growth, we have one [indiscernible] project, which is about to start the permitting process. And we had 2 others under discussion. We continued the capacity trial this weekend with our current feed, which is very high isopentane content. And all indications are that we can feed 6,700 gallons per day and make over 90,000 gallons per day of isopentane, which is exceptional. We continue to review options for acquisition brought to us by our investment consultant. We have not yet found a good fit. And apart from our [indiscernible] data, we expect an information package on a separate opportunity to come to us by the middle of this month. We have added a representative in China to support our efforts in the Pacific. And we continue to see good sales interest in the Middle East, Singapore and Brazil, amongst others.

On improved profitability, for one tolling customer, we have increased [indiscernible] significantly already this year and we are under detailed negotiation with 2 existing -- other existing tolling customers. For margins, our sales team continues to manage this, the price, as best as they can. And we have considered many alternative feeds. We have a hedging quality on the way to which we are adding more structure.

On the cost control, we have a new national gas contract. We're using pipelines dollar [indiscernible] they were reducing [indiscernible] transport. And clearly, we continue to minimize headcount wherever possible. The future growth, we have a number of potential sites under consideration. There's 1 in the Canadian oil sands, 1 in the Middle East, 1 in Corpus Christi for to take advantage of the Eagle Ford condensate. If we can find the right acquisition, that's how we'll be considering for an expansion of our [indiscernible]. And of course, [indiscernible], therefore, which we already have a cost estimate prepared. We're preparing the cost estimates on all the other options. And we're developing a detailed understanding of the economic drivers for each of these potential expansion.

Nicholas N. Carter

Thank you, Simon. As far as the 2013 strategic objectives for AMAK, at this point in the mine's life or in the project's life, what we're really shooting for is stabilization. We pretty well got most of the equipment on site that we need for times going forward.

We've got production underway on a pretty stable basis. We need to work on spare parts. We need to focus on stabilizing production with the existing mine output. Probably one of the big challenges working in Saudi Arabia is the technical workforce. And of course, the Mining business has been pretty hot worldwide. So one of the challenges has been to get the number of people we need on a technical basis and also keep them there because there's a lot of competition in the market for those type of people right now.

And so, we're working on our workforce at this point in time. We're going to continue with the exploration and development of the current leased area. There's a lot of promise in that 44 square kilometers that we currently have leases for. But there's a lot of exploration work that needs to be done to develop that total area. Of course, one of the goals we've been talking about is to finalize the addition of the new lease areas, and that's looking very favorable. It's just one of those things you just got to keep working away and work your way through the bureaucracy. And we're still confident that we're going to get what we need on those new areas that we want to put under lease. Once we do get the new lease areas signed up, well, of course, we want to initiate exploration of the new areas as soon as we can to just get an idea of what kind of assets we have there. And the plan as far as the exploration is already developed and in place and all that we're waiting on is signature on the new lease areas, and we've -- we are working with [indiscernible] to come up with the exploration plan that would make economic sense for everybody. So I would say that as a general rule for strategic objective for AMAK is number one, stabilize what we've got in operation there, and number 2, get ready for exploration of new areas.

Will the election judge -- we got maybe going at this point in time. We've got a video.

[Presentation]

Nicholas N. Carter

We'll probably get the meeting after the video. The video was completed less than a month ago. It is brand new. I think it tells the story of AMAK, a very good footage of what the assets look like and kind of tells the story of where the mining company is. That will be available on our website going forward. Anybody who cares to re-look at it, be happy to have you access it there.

Before we move on, I will make one more statement having to do with this issue about this revenue, timing differences that we discovered with AMAK and the changes to earnings per share going forward from 2012 to 2013. I think the important thing to note here is that AMAK started off with a little bit different revenue recognition than what is acceptable to us here in the U.S. under our reporting standards. Going forward, after this adjustment is made, we shouldn't have that problem again because AMAK has since made an accounting change, and therefore, the revenue recognition should coincide with what we're used to seeing here in the U.S. And so it is onetime adjustment. We shouldn't have that kind of problem going forward in the future. Especially this start up glitches that came up. Unfortunately, it was produced by the [indiscernible] in Saudi Arabia on their standards part of those is getting involved in it and once we could see what was happening we assisted AMAK in developing what we think is more reasonable revenue recognition process.

So anyway, it should be a onetime adjustment. And going forward, we shouldn't see that kind of problem again. Is the election judge is ready to submit a report on the proposals?

Unknown Executive

Mr. Chairman, I have the report [indiscernible] present to the secretary. I will now report on the results of voting for the proposals set forth in the report. At this meeting, there are present in person or represented by proxy, 16,220,179 [ph] shares of common stock. On the proposal for re-election of the directors nominated, the nominees received a majority of the votes that could have been cast by a holder of the shares present at the meeting in person and represented by proxy. On the proposal for the ratification of BKM Sowan Horan, LLP as independent registered accounting firm for the company for 2013, a majority of the votes that could have been cast by a holder of the shares present at the meeting in person or represented by proxy were in favor of the ratification. On the proposal for the approval by nonbinding vote of the compensation of the company named executives, a majority of the votes that could have been cast by a holder of the shares present at the meeting in person or represented by proxy [indiscernible].

Nicholas N. Carter

In accordance with the report of the election judge, I declare that the proposals have been voted upon and passed. I'd like to congratulate Mr. Adams and Mr. Ghazi Sultan for their election as directors and also BKM Sowan Horan as the ratification of the auditors, independent auditors for the year 2013.

Is there any other business come forth at the meeting? So since there are no further business come before the meeting, I will entertain a motion that this meeting be adjourned.

Unknown Executive

Mr. Chairman, I move that the meeting be adjourned.

Unknown Executive

Mr. Chairman, I second the motion.

Nicholas N. Carter

All in favor of the adjournment, please say aye.

[Voting]

Nicholas N. Carter

Any opposers? I now declare this meeting is adjourned.

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