RIO GRANDE INC /DE/, DEF 14A, 1995-05-17

RIO GRANDE INC /DE/
DEF 14A, 1995-05-17
DRILLING OIL & GAS WELLS

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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

RIO GRANDE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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:

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

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(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):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/ / 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:

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

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS OF RIO GRANDE, INC.
TO BE HELD ON JUNE 1, 1995

The Annual Meeting of the Shareholders of Rio Grande, Inc. (the
"Company"), a Delaware corporation, will be held in the Conference Room, of the
office of Rio Grande, Inc., 10101 Reunion Place, Suite 210, San Antonio, Texas
78216 on June 1, 1995 at 10:00 A.M. to elect directors of the Company, to
approve the Company's 1995 Incentive Stock Option Plan and the 1995
Non-Qualified Stock Option Plan, to approve the selection of KPMG Peat Marwick,
LLP as independent auditors and to approve any other matters as described in
the attached Proxy Statement.

The Board of Directors has chosen the close of business on April 21,
1995 as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting.

YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO FILL IN, DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE
PROVIDED FOR YOUR CONVENIENCE.

DATED: May 10, 1995

BY ORDER OF THE BOARD OF DIRECTORS:

GARY SCHEELE, Secretary
<PAGE> 3
RIO GRANDE, INC.
10101 REUNION PLACE, SUITE #210
SAN ANTONIO, TEXAS 78216-4156
__________________________

PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 1, 1995
__________________________

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES

This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Rio Grande, Inc (the
"Company") to be voted at the Annual Meeting of Shareholders of the Company to
be held at the office of Rio Grande, Inc., 10101 Reunion Place, Suite 210, San
Antonio, Texas, on June 1, 1995, at 10:00 a.m., local time, and at any
adjournment or postponements thereof.

All proxies delivered pursuant to this solicitation are revocable at
any time at the option of the persons executing them by giving written notice
to the Secretary of the Company, by delivering a later dated proxy or by voting
in person at the Annual Meeting.

The mailing address of the principal executive office of the Company
is 10101 Reunion Place, Suite 210, San Antonio, Texas 78216-4156. The
approximate date on which this Proxy Statement and form of proxy are first
being sent or given to shareholders is May 10, 1995.

All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of Directors to serve until the 1996
Annual Meeting of Shareholders, in voting by proxy, shareholders may vote in
favor of all nominees or withhold their votes as to all nominees or withhold
their votes as to specific nominees. With respect to the other proposals to be
voted upon, shareholders may vote in favor of a proposal, against a proposal or
may abstain from voting. Shareholders should specify their choices on the
enclosed form of proxy. If no specific instructions are given with respect to
the matters to be acted upon, the shares represented by a signed proxy will be
voted FOR the election of all nominees, FOR the adoption of the 1995 Incentive
Stock Option Plan and 1995 Non-Qualified Stock Option Plan (collectively, the
"95 Plans"), and FOR the proposal to ratify the appointment of KPMG Peat
Marwick, LLP as independent auditors.

The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum at
the Annual Meeting or any adjournment thereof. Directors will be elected by a
majority of the votes cast by the holders of the shares of Common Stock voting
in person or proxy at the Annual Meeting. Assuming the presence of a quorum,
approval of the 95 Plans and ratification of the appointment of KPMG Peat
Marwick, LLP as independent auditor will require the affirmative vote of the
holders of a majority of the shares of Common Stock present or represented at
the Annual Meeting and entitled to vote. Abstentions will have the same effect
as a

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<PAGE> 4
negative vote. Broker non-votes will not be included in vote totals and will
have no effect on the outcome of the vote.

Only owners of record of shares of Common Stock of the Company at the
close of business on April 21, 1995, are entitled to vote at the meeting or
adjournments or postponements thereof. Each owner of record on the record date
is entitled to one vote for each share of Common Stock of the Company so held.
Cumulative voting is not permitted. On April 21, 1995, there were 5,552,760
shares of Common Stock of the Company issued and outstanding.

PRINCIPAL SHAREHOLDERS

The following table provides information known to the Company as to
the Common Stock ownership, as of March 31, 1995, of (i) each beneficial owner
of 5% or more of the Common Stock, (ii) each named executive officer, (iii)
each Director who owns any Common Stock, (iv) each nominee for Director who
owns any Common Stock, and (v) all officers and Directors as a group:

<TABLE>
<CAPTION>
Name and Address of Amount of Beneficial
Beneficial Owner Ownership of Common
- ------------------- ------------------------------
Shares % of Class
------------ ----------
<S> <C> <C>
Robert A. Buschman (1) 1,150,920 (2) 19.42%
10101 Reunion Place, Suite 210
San Antonio, Texas
Guy R. Buschman (1) 1,341,570 (2) 22.63%
10101 Reunion Place, Suite 210
San Antonio, Texas

John G. Hurd (1) 800,400 (2) 13.50%
4040 Broadway, Suite 525
San Antonio, Texas

Edward Randall, III (3) 868,800 14.66%
5851 San Felipe, Suite 850
Houston, Texas

H. M. Shearin, Jr. (1) 100,000 1.69%
2002 Encino Vista
San Antonio, Texas

Ralph F. Cox (1) 1,000 (4) -
200 Rivercrest Drive
Fort Worth, Texas

Gary Scheele (1) 165,000 (2) 2.78%
10101 Reunion Place, Suite 210
San Antonio, Texas

Officers, directors and nominees for directors 3,558,890 (2) 60.04%
as a group (6 persons)
</TABLE>

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<PAGE> 5

____________________
(1) Information as to beneficial ownership has been furnished by the
respective shareholders. Each owner has the sole voting and
investment power with respect to their shares, except as noted below.
The shares above include options which are exercisable within 60 days
of the date of this proxy.

(2) Includes, respectively, options to purchase the equivalent number of
shares of Common Stock, which are exercisable at any time at exercise
prices of $0.385 to $0.44 per share: Robert A. Buschman, 45,000
options; Guy R. Buschman, 60,000 options; H.M. Shearin, Jr., 100,000
options; Gary Scheele, 165,000 options.

(3) Includes 600,000 shares held in family trusts, of which Mr. Randall is
Co-Trustee. Mr. Randall is neither an employee or director of the
Company.

(4) Less than one (1) percent.

ELECTION OF DIRECTORS

At the Annual Meeting, six directors are to be elected. Each person
elected to the Board of Directors shall hold office until the next Annual
Meeting, and until his successor shall be elected and qualified. Provided a
quorum is present at the Annual Meeting, the affirmative vote by the holders of
a majority of the shares of the $.01 par value common stock (the "Common
Stock") of the Company voting in person or represented by proxy is required to
elect Directors.

Unless otherwise directed, it is the intention of the persons named in
the enclosed proxy that proxies will be voted for the election of the nominees
listed below. Although the Directors of the Company do not contemplate that
any nominees will be unable to serve, if such a situation arises prior to the
meeting, the designated proxy holders will vote in accordance with their best
judgment. Four of the nominees for Director named in the following table are
now serving as Directors of the Company.
<TABLE>
<CAPTION>
Director
Name Position Age since
-------------------- --------------------------- --------- -----------
<S> <C> <C> <C>
Robert A. Buschman Chairman of the Board 68 1979
of Directors

Guy R. Buschman President and Director 44 1978

John G. Hurd Director 80 1982

H. M. Shearin, Jr. Director 72 1992

Hobby A. Abshier Director 63 -

Ralph F. Cox Director 62 -
</TABLE>

Robert A. Buschman is Chairman of the Board of Directors and the Chief
Executive Officer of the Company. Prior to joining the Company in February
1979, Mr. Buschman was President, Chief Executive Officer and a Director of
Dixilyn-Field Drilling Company, a subsidiary of Panhandle Eastern Pipeline
Company, from April 1978 to February 1979. Mr. Buschman has served as
President and a member of the Board of Directors of the International
Association of Drilling Contractors and the Texas Mid-Continent Oil and Gas
Association.

Guy R. Buschman, President and a Director, organized the Company in
April 1978. Mr.

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<PAGE> 6
Buschman was employed by Field International Drilling Company from August 1973
through March 1978 and held various positions with that company, including
domestic and international safety and insurance manager and supervisor of
shipyard construction of offshore drilling rigs. He also held foreign
assignments in Trinidad-Tobago, the Republic of Singapore and Egypt. He is a
past director of the International Association of Drilling Contractors.

John G. Hurd, a Director, has been managing general partner of Hurd
Enterprises, Ltd. and Hurd Investments, Ltd., both limited partnerships which
are engaged in the business of oil production, ranching and investments, for
more than the past five years. Mr. Hurd served as United States Ambassador to
the Republic of South Africa from 1970-1975.

H. M. (Johnny) Shearin, Jr., a Director, was President of SPG
Exploration Corporation from 1971 to 1988. Prior to 1971 Mr. Shearin was Vice
President and Manager of Engineering for Core Laboratories, Inc. In 1988 he
retired from Quantum Chemical (formerly National Distillers who acquired SPG).
From 1988 to present Mr. Shearin has performed consulting services for various
independent operators and oil field service and engineering companies.

Hobby A. Abshier is a General Partner of the AM Fund and for the past
10 years has been a General Partner and co-founder of Triad Ventures Limited.
Prior to entering the venture capital business, he spent 21 years at Rotan
Mosle, Inc., a regional investment banking firm, as a partner and a member of
its Board of Directors. Mr. Abshier is on the Board of Directors of Technology
Works, DTM Corp., B'trieve Technologies, all in Austin, Texas and Dawson Well
Servicing, Inc., San Antonio, Texas.

Ralph F. Cox is currently self-employed as an Energy Management
Consultant. For four years prior thereto, Mr. Cox was President of Greenhill
Petroleum Corporation, a subsidiary of Western Mining Corporation. From 1985
through 1990, he served as President and Chief Operating Officer of Union
Pacific Resources Company, a petroleum exploration and production company.
Before 1985, Mr. Cox spent 31 years with Atlantic Richfield Company ("ARCO"),
joining the ARCO board in 1978, assuming responsibility for ARCO's worldwide
petroleum exploration and production activities and minerals exploration and
production activities in 1984, and culminating with his election as Vice
Chairman of ARCO in 1985. Mr. Cox serves as a director of Bonneville Pacific
Corporation, an independent power company, as a director of Cham Hill,
engineering consulting firm, and as Independent Trustee for The Fidelity Group
of Funds. Mr. Cox holds a Bachelor of Science in Petroleum Engineering and a
Bachelor of Science in Mechanical Engineering from Texas A & M University.

Guy R. Buschman is the son of Robert A. Buschman. Ralph Cox is the
brother-in-law to Robert A. Buschman and uncle to Guy R. Buschman. There are
no other family relationships in the Company.

Each director will serve until the next annual meeting of shareholders
and until his successor is duly elected and qualified. See Cash Compensation
for fees paid to Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors has an Audit Committee and a
Compensation and Stock Option Committee. Both Committees are composed of
Messrs. Hurd, Gardner and Shearin. The principal functions of the Audit
Committee are to give additional assurance that financial information is
accurate and timely, recommend to the Board of Directors the engagement of
independent auditors, ascertain the existence of an effective accounting and
internal control system,

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oversee the entire audit function, and review and pass on the fairness of
existing arrangements between the Company and affiliated parties on an annual
basis. The Compensation and Stock Option Committee administers the Company's
stock option plans and recommends compensation for executive officers to the
Board of Directors.

During the fiscal year ended January 31, 1995, the Board held two
meetings which were attended by all the Directors. There was one meeting of
the Audit Committee which was attended by all members, and no meeting of the
Compensation and Stock Option Committee. The outside Directors serving on the
Board's Audit and Compensation and Stock Option Committees receive $100 per
committee meeting.

EXECUTIVE OFFICERS

The following individuals serve as Executive Officers of the Company
and are elected by the Board to serve in that position each year effective with
the Annual Meeting:

Robert A. Buschman Chairman and Chief Executive Officer
Guy R. Buschman President
Gary Scheele (1) Vice President and Secretary/Treasurer
___________________________
(1) Gary Scheele, a Certified Public Accountant, has been with the Company
since its organization in April, 1978.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes the compensation paid by the Company to
its Chief Executive Officer and all the executive officers of the Company whose
salary and bonus from the Company for services rendered during the fiscal year
ended January 31, 1995 exceeded $100,000.

<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
--------------------------------------- ---------------------------------
(2) Restricted
Name and Fiscal Salary Bonus Other Stock Options All
Principal Position Year $ $ $ Awards # Other
---------------------- ------ ------ ----- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Buschman 1995 86,288 - 23,213 - - -
Chairman and Chief
Executive Officer 1994 83,000 - 21,982 - - -

1993 51,500 10,000 18,566 - 45,000 -
</TABLE>

_____________________________
(2) Includes the cost to the Company of the personal use of a Company
vehicle, group life insurance premiums paid by the Company in excess of
$50,000 and other miscellaneous personal benefits paid by the Company.

OPTIONS AND GRANTS

No stock options were issued to any employees for the year ended
January 31, 1995.

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<PAGE> 8
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table presents certain information regarding the exercise
of options during fiscal 1995, and options held at January 31, 1995 by Robert
A. Buschman, Chairman of the Board and Chief Executive Officer of the Company.

<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options at Options at
Shares January 31, 1995 January 31, 1995
Acquired ------------------------------ ------------------------------
on Value (3)
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------- --------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
- - 45,000 - $ - -

</TABLE>
_____________________
(3) There are no listed market quotes for the Company's common stock. The
exercise price of the unexercised options is in excess of the Company's
book value per share at January 31, 1995.

DIRECTOR COMPENSATION

Each Director of the Company who is not an officer of the Company is
paid $1,000 per month for serving as a Director. H. M. Shearin has served as a
consultant to the Company for the year ended January 31, 1995 and was paid
total fees of $18,000.

ADOPTION OF THE 1995 INCENTIVE PLAN AND 1995 NON-QUALIFIED PLAN

The Company's 1986 Incentive Stock Option Plan ("86 Incentive Plan")
and the 1986 Non-Qualified Stock Option Plan ("86 Non-Qualified Plan")
(collectively, the "86 Plans") terminate December 31, 1995. The initial
purpose for each of the 86 Plans was to assist the Company in attracting,
motivating and retaining key employees and non-employee directors. In order to
maintain the continuity of the 86 Plans, the Company is submitting for
shareholder approval at the Annual Meeting the 1995 Incentive Stock Option Plan
("95 Incentive Plan") and the 1995 Non-Qualified Stock Option Plan ("95
Non-Qualified Plan"), to replace the 86 Plans. Although the approval of the 95
Plans will replace the 86 Plans, options outstanding under the 86 Plans shall
remain in effect until they have been exercised or have expired. All options
outstanding under the 86 Plans expire in 1999. The 95 Plans will be
administered by the Compensation and Stock Option Committee of the Board of
Directors which will consist of at least two (2) "disinterested" Directors as
defined by the Securities and Exchange Act, as amended.

The following discussion summarizes the material differences between
the proposed plans. The 95 Plans are attached as exhibits to this Proxy
Statement.

The Incentive Stock Option Plan. The Company will reserve
500,000 shares of its $.01 par value Common Stock for issuance under
the 1995 Incentive Plan. Only key employees, as determined by the
Compensation and Stock Option Committee, are eligible for participation
in the 95 Incentive Plan. The options are exercisable beginning one
(1) year from the date of grant. The unexercised portion of any option
granted under the 95 Incentive Plan terminates or becomes null and void
ten (10) years from the date of the grant, except for holders of more
than 10% of the

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Company Stock. Such grants expire after five (5) years. Grants also
expire ninety (90) days after the termination of Optionee's employment
with the Company, one (1) year after the termination of Optionee's
employment with the Company on account of disability or one (1) year
after Optionee's death.

The Committee determines the exercise price of an option, which
may never be less than the fair market value of the Common Stock on the
date of grant. The Common Stock is currently not listed on a national
exchange, therefore, the Committee will determine the fair market value
based on the information available at the time options are granted.
No options will be considered or granted under the 95 Incentive Plan
until after the Annual Meeting at which time the new Board of Directors
will select the outside directors to serve on the Compensation and
Stock Option Committee for the ensuing year.

The Non-Qualified Option Plan. The Company has reserved 525,000
shares of its $.01 par value Common Stock for issuance under the 1995
Non-Qualified Plan. Non-employee directors are eligible for
participation in this plan. Options granted to non-employee directors
are exercisable beginning one (1) year from the date of grant, and
expire on the tenth anniversary of such date. Non-employee directors
who, at the date of their election to the Board, have not previously
been granted options in the 95 Non-Qualified Plan, are to be
automatically granted options to purchase 50,000 shares of the
Company's Common Stock under terms described in the 95 Non-Qualified
Plan. Thereafter, each year, upon re-election to the Board,
non-employee directors will be granted options to purchase an
additional 5,000 shares of the Company's Common Stock, up to a maximum
of 75,000. The unexercised portion of any option granted under the 95
Non-Qualified Plan terminates or becomes null and void ten (10) years
from the date of the grant. Grants also expire ninety (90) days after
Optionee ceases to serve as a member of the Board of Directors with the
Company or one (1) year after Optionee's death.

The exercise price of an option will be computed by formula. If
the Common Stock is actively traded on a national exchange, the option
price will be the average of the highest and lowest trades for the date
the option is granted. If the Common Stock is not actively traded on a
national exchange, the exercise price will be determined by dividing
the shareholders' equity at the end of the immediately preceding fiscal
quarter by the total outstanding Common Stock on such date and
multiplying by 1.2. The anticipated election of the non-employee
nominees as directors of the Company at the Annual Meeting will entitle
each such nominee options to purchase 50,000 shares of the Company
Stock at an approximate price of $0.50, however the exact option price
will not be determined until after the Annual Meeting and the selection
of the new Compensation and Stock Option Committee.

FEDERAL INCOME TAX CONSEQUENCES

The Incentive Stock Option Plan. A participant who receives an
incentive stock option under the 95 Incentive Plan will ordinarily not
recognize any income for federal income tax purposes as a result of the receipt
or exercise of such option. However, the exercise of an incentive stock option
will give rise to an increase in the participant's alternative minimum taxable
income for purposes of the alternative minimum tax in an amount equal to the
excess of the fair market value of the Common Stock at such time the
participant's rights to the stock are freely transferable and are not subject
to a substantial risk of forfeiture. The Company will not be entitled to a
compensation deduction for federal income tax purposes with respect to either
the grant of an incentive stock option under the 1995 Incentive Plan or the
exercise of such an option by the participant. If the

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participant does not dispose of the shares of Common Stock acquired through the
exercise of the incentive stock option within two (2) years of the date of the
grant of such option, or within one (1) year after the exercise date, and if the
participant is employed by the Company from the time the option is granted until
three (3) months before its exercise, any gain or loss recognized upon the
disposition will constitute a long-term capital gain or loss and the Company
will not be entitled to a deduction. If a participant disposes of the shares
prior to the expiration of such holding periods, the participant will recognize,
at the time of such disqualified disposition, ordinary income equal to the
difference between the exercise price and the lower of (i) the fair market value
of the shares subject to the option on the date of exercise or (ii) the amount
realized by the participant on the sale of such shares. Any remaining gain will
be taxed as a capital gain. In the event of a disqualified disposition, the
Company will be entitled to a deduction in an amount equal to the income
recognized by the participant.

If a participant pays the exercise price of an incentive stock option
solely with Common Stock, and if the shares surrendered are (i) shares not
received pursuant to the exercise of an incentive stock option and not subject
to a substantial risk or forfeiture or (ii) the result of the participant's
exercise of another incentive stock option, the exercise of which satisfied the
above stated holding period requirements, the participant will not recognize
income. Additionally the basis and holding period of the surrendered Common
Stock will be transferred to that number of new shares equal to the number of
old shares surrendered. If more shares are received than were surrendered, the
additional shares' basis will be zero. If these conditions are not met, the
payment of the exercise price with shares of Common Stock may be treated as a
disqualified disposition or otherwise taxable disposition.

The Non-Qualified Option Plan. The grant of a non-qualified option
under the 95 Non-Qualified Plan should not ordinarily be a taxable event for
federal income tax purposes. Upon exercise of a non-qualified option, the
participant will recognize ordinary income in an amount equal to the difference
between the amount paid by the participant for the shares of Common Stock and
the fair market value of such shares determined on the later of (i) the date of
exercise or (ii) the date on which the shares of Common Stock become
transferable by the participant and are not subject to a substantial risk of
forfeiture. If the Company withholds all amounts required to be withheld under
applicable law or other authority, the Company ordinarily will be entitled to a
deduction equivalent to the amount of compensation income recognized by the
participant.

If a participant pays the exercise price of non-qualified options
solely with Common Stock, the shares received will generally have the same
basis and holding period as the Common Stock surrendered. If more shares are
received than were surrendered, the additional shares will cause the
participant to recognize compensation income either at the time of transfer or
when restrictions with respect to those shares lapse.

EXHIBITS

Copies of the complete text of the 95 Incentive Plan and the 95
Non-Qualified Plan are set forth in Exhibits A and B, respectively to this
Proxy Statement. Provided a quorum is present, the affirmative vote of the
holders of the majority of the shares represented or present and entitled to
vote at the Annual Meeting will be required to approve each of the 95 Plans.
The Board of Directors recommends that the shareholders vote for the 95 Plans.

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<PAGE> 11
RELATED TRANSACTIONS

In June 1992, Drilling formed a Texas limited partnership, Offshore, to
acquire certain non-operated offshore and onshore oil and gas properties. One
of the limited partners in Offshore is Robert A. Buschman, Chairman of the
Board and Chief Executive Officer of the Company. Mr. Buschman has made
capital contributions of approximately $817,000, equivalent to his ten percent
(10%) ownership interest in Offshore. Fees of $444,000 and $12,000 were
charged to Offshore as reimbursement to the Company for managing the affairs of
the partnership in 1995 and 1994, respectively.

During fiscal 1994 and 1995, certain officers and directors
participated with the Company in the acquisition of oil and gas leases. The
officers and directors paid approximately $44,000 for their proportionate share
of acquisitions for such properties.

COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The Compensation and Stock Option Committee (the "Committee") of the
Board of Directors approves compensation objectives and policy for all
employees and sets compensation for the Company's executive officers.

The Committee is comprised entirely of independent outside directors
who usually meet once a year to review the executive officers' compensation.
Compensation for a newly hired executive may be established by the Committee at
a special meeting. The Committee's recommendation of executive salaries,
bonuses or any awards under the Company's Incentive Stock Option Plan are
presented to the newly elected Board of Directors for approval at the directors
meeting immediately following the Annual Meeting of Shareholders. The
Committee presents the following report on executive compensation.

OBJECTIVES AND POLICIES

The Committee seeks to:

o provide rewards which are closely linked to the Company's team
and individual performance

o align the interests of the Company's employees with those of its
shareholders through potential stock ownership

o ensure that compensation and benefits are at levels which enable
the Company to attract and retain the high-quality employees it
needs

The Committee applies these objectives and policies to most employees
through the broad and deep availability of performance-based cash incentive
opportunities and stock option grants.

Consistent with these objectives and in keeping with the Company's
long-term focus, it is the policy of the Committee to make a high proportion of
executive officer compensation and awards under stock ownership programs
dependent on long-term performance and on enhancing shareholder value.
Executive officer compensation and stock ownership programs have both
short-term and longer-term components. Short-term components include base
salary and bonus. Longer-term

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components include stock option awards as previously issued under the 86
Incentive Plan and to be issued currently under the 95 Incentive Plan.

Provided that other compensation objectives are met, it is the
Committee's intention that executive compensation be deductible for federal
income tax purposes. For this reason, at this meeting it is recommended that
shareholders approve the 95 Plans which have been amended to comply with new
legislation on tax deductibility which is effective for the 1994 tax year.

BASE SALARY AND BONUS

Executive officer base salary and individual bonus awards are
determined with reference to Company-wide and individual performance for the
previous fiscal year, based on a wide range of quantitative and qualitative
measures. The quantitative measures are for earnings and revenue growth.
Qualitative assessments are for administrative operations and strategic plans
for additional acquisitions.

The Committee does not rely exclusively on these quantitative and
qualitative measures. It exercises subjective judgment and discretion in the
light of these measures to determine base salaries and individual bonus awards.

STOCK OPTIONS

Within the total number of shares authorized by shareholders, the
Committee aims to provide stock option awards broadly and deeply throughout the
organization. Individual executive officer stock option awards are based on
level of position, individual contribution and the Company's stock ownership
objectives for executives. The Committee also considers stock option grants
previously made and the aggregate of such grants. As with the determination of
base salaries and bonus awards, the Committee exercises subjective judgment and
discretion in view of the above criteria and its general policies. The
Company's long-term performance ultimately determines compensation from stock
options, since stock option value is entirely dependent on the long-term growth
of the Company and the liquidity of the stock.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

The Committee believes that Robert A. Buschman's 1994 compensation as
Chief Executive Officer is comparable to other companies whose asset value and
revenue performance are similar to the Company.

The Company periodically reviews outside compensation and benefits to
compare the base salary and incentive compensation programs for the Company's
executive officers with those of other industry related companies of similar
size and performance to ensure that the compensation is appropriate to the
Company's objectives. The Committee exercises judgment and discretion in the
information it reviews and the decisions it makes.

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<PAGE> 13
PERFORMANCE OF COMPANY STOCK

The Company has not been listed on any exchange or the NASDAQ since
1985, therefore, there is no established market for the Company's Common Stock.
No performance graph can be provided to compare the Company's stock performance
to other companies for either the DJPI or Standard & Poor's 500 Index.

John J. Hurd, Chairman Victor H. Gardner H. M. Shearin, Jr.

APPOINTMENT OF INDEPENDENT AUDITORS

The firm of KPMG Peat Marwick, LLP, independent certified public
accountants, has been selected by the Board of Directors, subject to approval
of such selection by the shareholders, to serve as the Company's independent
auditors for the fiscal year commencing February 1, 1995. KPMG Peat Marwick,
LLP has served as the Company's independent auditors since the inception of the
Company. A representative of KPMG Peat Marwick, LLP is expected to be present
at the Annual Meeting with an opportunity to make a statement if he so desires,
and to be available to respond to appropriate questions. The Board of
Directors recommends you vote for approval of the selection of KPMG Peat
Marwick, LLP as independent auditors for the Company.

COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, Directors and persons who own more than 10% 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
and to furnish copies to the Company.

Based upon a review of the reports furnished to the Company and
representations made to the Company by its officers and Directors, the Company
believes that, during fiscal 1995, its officers, directors and 10% beneficial
owners complied with all applicable reporting requirements.

SHAREHOLDER PROPOSALS

Any shareholder who wishes to submit a Proposal for inclusion in the
proxy material and presentation at the 1996 Annual Meeting of Shareholders must
forward such proposal to the Secretary of the Company, 10101 Reunion Place,
Suite 210, San Antonio, Texas 78216 so that the Secretary receives it no later
than January 12, 1996.

PROXY SOLICITATION

The cost of soliciting will be paid by the Company. In addition to
solicitation by mail, solicitation of proxies may be made personally or by
telephone or telegraph by the Company's regular employees, and arrangement will
be made with brokerage houses or other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals.

-11-
<PAGE> 14
OTHER BUSINESS

The Board of Directors does not know of any other matters which are to
be presented for action at the meeting. However, if any other matters properly
come before the meeting, it is intended that the enclosed proxy will be voted
in accordance with the judgement of the persons voting the proxy.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR ALL
PROPOSALS AS PRESENTED IN THE PROXY STATEMENT. PROXIES RECEIVED BY THE BOARD
OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY IN THEIR PROXIES A
CONTRARY CHOICE.

THIS PROXY STATEMENT IS ACCOMPANIED WITH THE COMPANY'S FORM 10-K. UPON
THE WRITTEN REQUEST OF ANY PERSON WHOSE PROXY IS SOLICITED HEREUNDER, THE
COMPANY WILL FURNISH WITHOUT CHARGE TO SUCH PERSON A COPY OF ITS FORM 10-K,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED JANUARY 31, 1995.
SUCH WRITTEN REQUEST IS TO BE DIRECTED TO THE ATTENTION OF GARY SCHEELE,
SECRETARY, RIO GRANDE, INC., 10101 REUNION PLACE, SUITE 210, SAN ANTONIO, TEXAS
78216-4156.

By Order of the Board of Directors

Gary Scheele, Secretary

Dated: May 10, 1995

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<PAGE> 15
RIO GRANDE, INC.

1995 INCENTIVE STOCK OPTION PLAN

RIO GRANDE, INC., a Delaware corporation (the "Company"), hereby
formulates and adopts the following 1995 Incentive Stock Option Plan (the
"Plan") for employees of the Company and its subsidiaries.

1. PURPOSE. The purpose of this Plan is to secure for the Company
the benefits of the additional incentive inherent in the ownership of its
Common Stock by selected key employees of the Company and its subsidiaries who
are important to the success and the growth of the business of the Company and
its subsidiaries, and to help the Company and its subsidiaries secure and
retain the services of such key employees. The Plan shall be administered so
as to qualify the options as "incentive stock options" under Section 422 of the
Internal Revenue Code.

2. COMPENSATION COMMITTEE. Subject to the provisions of paragraph
4, this Plan shall be administered by the Compensation and Stock Option
Committee (the "Committee") of the Board of Directors of the Company, to be
appointed by at least a majority of the whole Board of Directors. The
Committee will consist of not less than two (2) "disinterested" Directors as
provided by Section 16b(3) of the Securities and Exchange Act, as amended. The
Committee shall select one of its members as Chairman and shall adopt such
rules and regulations as it shall deem appropriate concerning the holding of
its meetings and the transaction of its business. A majority of the whole
Committee shall constitute a quorum, and the act of a majority of the members
of the Committee present at a meeting at which a quorum is present shall be the
act of the Committee. Any member of the Committee may be removed at any time
either with or without cause by resolution adopted by the Board of Directors of
the Company; and any vacancy on the Committee may at any time be filled by
resolution adopted by the Board of Directors.

3. GRANT OF OPTIONS. The Committee shall have the authority and
responsibility, within the limitations of this Plan, to determine the key
employees to whom options are to be granted, the number of shares that may be
purchased under each option and the option price.

In determining the key employees to whom options shall be
granted and the number of shares to be covered by each such option, the
Committee shall take into consideration the employee's present and potential
contribution to the success of the Company and its subsidiaries and such other
factors as the Committee may deem proper and relevant.

4. EMPLOYEES ELIGIBLE. Options may be granted under this Plan to
any key employee or prospective key employee (conditioned and effective upon
his becoming an employee) of the Company or its subsidiaries. Employees who
are also officers or directors of the Company or its subsidiaries shall not by
reason of such offices be ineligible to receive options under this Plan;
provided, however, that no director who is not also an employee of the Company
or any of its subsidiaries shall be eligible to receive options.

An Employee receiving any option under this Plan is hereinafter
referred to as an "Optionee." Any reference herein to the employment of an
Optionee with the Company shall include his employment with the Company or any
of its subsidiaries.

Exhibit A
-1-
<PAGE> 16
5. STOCK SUBJECT TO OPTIONS. Subject to the provisions of
paragraph 13, the number of shares of the Company's Common Stock subject at any
one time to options, plus the number of such shares then outstanding pursuant
to exercises of options granted under this Plan, shall not exceed 500,000. If,
and to the extent the options granted under this Plan terminate or expire
without having been exercised, new options may be granted with respect to the
shares covered by such terminated or expired options; provided that the
granting and terms of such new options shall in all respects comply with the
provisions of this Plan.

Shares sold or distributed upon the exercise of any option
granted under this Plan may be shares of the Company's authorized and unissued
Common Stock, shares of the Company's issued Common Stock held in the Company's
treasury, or both.

There shall be reserved at all times for sale or distribution
under this Plan a number of shares of Common Stock (either authorized and
unissued shares or shares held in the Company's treasury, or both) equal to the
maximum number of shares which may be purchased or distributed upon the
exercise of options granted or that may be granted under this Plan.

6. OPTION PRICE. The option price of each share of Common Stock
purchasable under any option granted under this Plan shall be not less than the
fair market value thereof at the time the option is granted and shall be set
forth in the option agreement; provided, however, that the option price for any
share of Common Stock purchasable under an option granted to an individual
owning, at the time the option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or its
subsidiary corporations, shall be one hundred ten percent (110%) of the fair
market value at the time the option is granted.

The percentage of the Company stock owned by an Optionee for
purposes of determining the option price under this paragraph and the duration
of the option under paragraph 8(b)(1) below shall be computed in the manner
provided in Section 424(d) of the Internal Revenue Code.

The fair market value of the Common Stock on any day shall be
the mean between the highest and lowest quoted selling prices of the Common
Stock on such day as reported by the national stock exchange on which such
stock is listed. If no sale shall have been made on that day, the average of
the highest and lowest quoted selling prices of the Common Stock for five (5)
consecutive trading days before the day of the grant shall become the Option
Price. If no sale shall have been made, or if the Company Stock is not listed
on a national exchange, the Option Price shall be the fair market value of the
Common Stock as determined by the Committee based on the information available
to the Committee at the time the options are granted.

7. EXPIRATION AND TERMINATION OF THE PLAN. Options may be granted
under this Plan at any time and from time to time, prior to January 31, 2005,
on which date this Plan will expire, except as to options then outstanding
under this Plan. Such options shall remain in effect until they have been
exercised or have expired. This Plan may be terminated or modified at any time
prior to January 31, 2005, by the Board of Directors except to the extent
prohibited by Section 422 of the Internal Revenue Code.

No modification, extension, renewal or other change in any
option granted under this Plan shall be made after the grant of such option
unless the same is consistent with the provisions of this Plan.

Exhibit A
-2-
<PAGE> 17
8. EXERCISABILITY AND DURATION OF OPTIONS.

(a) Any option granted under this Plan shall become exercisable
after the expiration of one (1) year following the date on which any such
option was granted (or after the lapse of such additional period or periods of
time or the occurrence of such event or events as the Committee, in its
discretion, may provide upon the granting thereof).

(b) The unexercised portion of any option granted under this Plan
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:

(1) The expiration of ten (10) years from the date on which
such option was granted; provided, however, that in the case of any
optionee owning, at the time such option was granted, more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or its subsidiaries, such expiration shall be as
of five (5) years from the date on which such option was granted.

(2) The expiration of ninety (90) days from the date of
termination of the Optionee's employment with the Company or any
subsidiary; provided that if the Optionee shall die during such 90-day
period the provisions of subparagraph (3) below shall apply;

(3) The expiration of one (1) year following the issuance of
letters testamentary or letters of administration to the executor or
administrator of a deceased Optionee, if the Optionee's death occurs
either during his employment with the Company or during the 90-day
period following the date of termination of such employment, but not
later than one (1) year after the Optionee's death.

(4) The expiration of one (1) year from the date of
termination of the Optionee's employment with the Company or any
subsidiary on account of Optionee becoming disabled within the meaning
of Section 22(e)(3) of the Internal Revenue Code.

(5) The termination of the Optionee's employment with the
Company for cause, including breach by the Optionee of an employment
agreement with the Company or any of its subsidiaries or the Optionee's
commission of a felony or misdemeanor (whether or not prosecuted)
against the Company or any of its subsidiaries;

(6) The expiration of such period of time or the occurrence
of such event as the Committee, in its discretion, may provide upon the
granting thereof.

9. EXERCISE OF OPTIONS. The option granted herein shall be
exercised by the Optionee (or by his executors or administrators, as provided
in paragraph 10) as to all or part of the shares covered by the Option, by
giving written notice of the exercise thereof to the Company at its principal
business office, specifying the number of shares to be purchased, and
specifying a business day (the "exercise date") not less than five (5) days nor
more than fifteen (15) days from the date such notice is given, for the payment
of the purchase price against delivery of the shares being purchased. In such
notice, the Optionee shall elect whether he is to pay for his shares in cash or
in Common Stock of the Company, or both, and if payment is to be made in Common
Stock, it shall be valued at its fair market value on the date of such notice,
as determined by the Committee. The

Exhibit A
-3-
<PAGE> 18
giving of such written notice to the Company shall constitute an irrevocable
election to purchase the number of shares specified in the notice on the date
specified in the notice.

The Company shall cause certificates for any shares to be
delivered to the Optionee or his executors or administrators at its principal
business office within five (5) business days after the exercise date.

10. NONTRANSFERABILITY OF OPTIONS. No option granted under this
Plan or any right evidenced thereby shall be transferable by the Optionee other
than to the Optionee's executors or administrators by will or the laws of
descent and distribution. During the lifetime of an Optionee, he alone may
exercise his options.

In the event of the Optionee's death during his employment with
the Company, or during the 90-day period following the date of termination of
such employment, his options shall thereafter be exercisable, as provided in
paragraph 8(b)(3), only by his executors or administrators.

11. RIGHTS OF OPTIONEE. Neither the Optionee nor his executors or
administrators shall have any of the rights of a shareholder of the Company
with respect to the shares subject to an option granted under this Plan until
certificates for such shares shall have been issued upon the exercise of such
option.

12. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
option granted under this Plan shall confer upon Optionee the right to continue
in the employment of the Company or affect the right of the Company or any of
its subsidiaries to terminate the Optionee's employment at any time, subject,
however, to the provisions of any written agreement of employment between the
Company or any of its subsidiaries and the Optionee.

13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event
of any stock split, stock dividend, reclassification or recapitalization which
changes the character or amount of the Company's outstanding Common Stock while
any portion of any option theretofore granted under this Plan is outstanding
but unexercised, the Committee shall make such adjustments in the character and
number of shares subject to such options and in the option price as shall be
equitable and appropriate in order to make the option, if any, as nearly as may
be practicable, equivalent to such option immediately prior to such change;
provided that no such adjustment shall give the Outside Director any additional
benefits under his option.

If the Company participates in any transaction resulting in a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors of the Company or any
surviving or acquiring corporation shall take such action as is equitable and
appropriate to substitute a new option for an old option, or to assume the old
option, in order to make the new option, as nearly as may be practicable,
equivalent to the old option.

Any adjustment in the shares subject to outstanding stock
options (including any adjustment in the stock option price) shall be made in
such manner as not to constitute a modification as defined by Subsection (h)(3)
of Section 424 of the Internal Revenue Code.

If any such change or transaction shall occur, the number and
kind of shares for which options may thereafter be granted under this Plan
shall be adjusted to give effect thereto.

Exhibit A
-4-
<PAGE> 19
14. FORM OF AGREEMENTS WITH OPTIONEE. Each option granted under
this Plan shall be substantially in the form annexed hereto as Exhibit "A" with
such modifications or additions, not inconsistent with the provisions of this
Plan as the Committee shall provide.

15. PURCHASE FOR INVESTMENT AND LEGALITY. The Optionee, by his
acceptance of any option granted under this Plan, shall represent and warrant
to the Company that his purchase or receipt of shares of Common Stock upon the
exercise thereof shall be for investment and not with a view to distribution,
provided that such representation and warranty shall be inoperative if, in the
opinion of counsel to the Company, a proposed sale or distribution of such
shares is pursuant to an applicable effective registration statement under the
Securities Act of 1933 or is without such representation and warranty exempt
from registration under such Act.

The obligation of the Company to issue shares upon the exercise
of an option shall also be subject as conditions precedent to compliance with
applicable provisions of the Securities Act of 1933, the Securities Exchange
Act of 1934, state securities laws, rules and regulations under any of the
foregoing and applicable requirements of any securities exchange upon which the
Company's securities shall be listed.

The Company may endorse an appropriate legend referring to the
foregoing restrictions upon the certificate or certificates representing any
shares issued or transferred to the Optionee upon the exercise of any option
granted under this Plan.

16. EFFECTIVE DATE OF PLAN. This Plan shall become effective upon
its approval by the Company's shareholders.

Exhibit A
-5-
<PAGE> 20
EXHIBIT "A"

RIO GRANDE, INC.

STOCK OPTION

KNOW ALL MEN BY THESE PRESENTS: That RIO GRANDE, INC. (The "Company")
having adopted a 1995 Incentive Stock Option Plan (the "Plan"), hereby grants
to ___________________________________ (the "Optionee") the right and option to
purchase _____________ shares of the Common Stock of the Company on the
following terms and conditions:

1. The option granted herein shall become exercisable after the
expiration of one (1) year following the date hereof unless otherwise
provided in Annex 1 hereto.

2. The unexercised portion of the option granted herein shall
automatically and without notice terminate and become null and void at
the time of the earliest of the following to occur:

(a) the expiration of ten (10) years from the date on which
this option is granted, provided, however, that in the case of
an Optionee owning more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (as
such ownership is defined in Section 424(d) of the Internal
Revenue Code), at the time the option is granted, such
expiration shall be as of five (5) years from the date on which
this option is granted;

(b) the expiration of ninety (90) days from the date of
termination of the Optionee's employment with the Company;
provided that if the Optionee shall die during such 90-day
period the provisions of subparagraph (c) below shall apply;

(c) the expiration of one (1) year after the issuance of
letters testamentary or letters of administration to the
executor or administrator of the Optionee if the Optionee's
death occurs either during his employment with the Company or
during the 90-day period following the date of termination of
such employment, but not later than one (1) year after the
Optionee's death.

(d) The expiration of one (1) year from the date of
termination of the Optionee's employment with the Company or any
subsidiary on account of Optionee becoming disabled within the
meaning of Section 22(e)(3) of the Internal Revenue Code.

(e) the termination of the Optionee's employment with the
Company for cause, including a breach by the Optionee of any
employment agreement with the Company or any of its subsidiaries
or the Optionee's commission of a felony or misdemeanor (whether
or not prosecuted) against the Company or any of its
subsidiaries;

(f) the occurrence of the event or the expiration of the
period set forth in Annex 2 hereto.

Exhibit A
-6-
<PAGE> 21
3. The option granted herein shall be exercised by the Optionee (or
by his executors or administrators, as provided in paragraph 8) as to all or
part of the shares covered hereby, by the giving of written notice of such
exercise to the Company at its principal business office, specifying the number
of shares to be purchased, and whether payment is to be made in cash or Common
Stock of the Company, or both, and specifying a business day (the "exercise
date") not less than five (5) days nor more than fifteen (15) days from the date
such notice is given, for the payment of the purchase price against delivery of
the shares being purchased. The giving of such written notice to the Company
shall constitute an irrevocable election to purchase the number of shares
specified in the notice and to exercise the right on the date specified in the
notice.

4. The purchase price of the shares which may be purchased pursuant
to the option granted herein shall be $__ _____ per share.

5. Neither the Optionee nor his executors or administrators shall
have any of the rights of a shareholder of the Company with respect to the
shares subject to this option until a certificate or certificates for such
shares shall have been issued upon the exercise of this option.

6. Nothing in this stock option agreement shall confer upon
Optionee the right to continue in the employment of the Company or affect the
right of the Company or any of its subsidiaries to terminate the Optionee's
employment at any time, subject, however, to the provisions of any agreement of
written employment between the Company or any of its subsidiaries and the
Optionee.

7. The option granted herein shall not be transferable by the
Optionee other than to his executors or administrators by will or the laws of
descent and distribution, and during the Optionee's lifetime shall be
exercisable only by him.

8. In the event of the Optionee's death during his employment with
the Company, or during the 90-day period following the date of termination of
such employment pursuant to paragraph 2(b), this option shall thereafter be
exercisable, as provided in paragraph 2(c), only by his executors or
administrators.

9. In the event of any stock split, stock dividend,
reclassification, or capitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of this option is
outstanding but unexercised, the Compensation Committee appointed under the
Plan shall make such adjustments in the character and number of shares subject
to such unexercised portion of this option, and in the option price, as shall
be equitable and appropriate in order to make the option, as nearly as may be
practicable, equivalent to this option immediately prior to such change;
provided that no adjustment shall give the Optionee any additional benefits
under this option.

Exhibit A
-7-
<PAGE> 22
equitable and appropriate to substitute a new option for this option, or to
assume this option, in order to make the new option, as nearly as may be
practicable, equivalent to this option.

10. The Optionee, by his acceptance hereof, represents and warrants
to the Company that his purchase of shares of Common Stock upon the exercise
hereof shall be for investment and not with a view to distribution, provided
that this representation and warranty shall be inoperative if, in the opinion
of counsel to the Company, a proposed sale or distribution of such shares is
pursuant to an applicable effective registration statement under the Securities
Act of 1933 or without such representation and warranty is exempt from
registration under such Act.

The Optionee agrees that the obligation of the Company to issue
shares upon the exercise of an option shall also be subject as conditions
precedent to compliance with applicable provisions of the Securities Act of
1933, the Securities Exchange Act of 1934, state securities laws, rules and
regulations under any of the foregoing and applicable requirements of any
securities exchange upon which the Company's securities shall be listed.

The Company may endorse an appropriate legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Optionee upon the exercise of this option.

11. As used herein, the term "employment with the Company" shall
include employment with the Company or with any of its subsidiaries.

IN WITNESS WHEREOF, the Company has caused these presents to be signed
by its officer duly authorized thereto this _____ day of_______________, 199__.

RIO GRANDE, INC.
ATTEST:

______________________________ By:______________________________
Secretary Title:___________________________

ACCEPTED AND AGREED TO:

______________________________
OPTIONEE

Exhibit A
-8-
<PAGE> 23
Annex 1:

Conditions to Exercise of Options.

Exhibit A
-9-
<PAGE> 24
Annex 2:

Additional Conditions.

Exhibit A
-10-
<PAGE> 25
RIO GRANDE, INC.

1995 NON-QUALIFIED STOCK OPTION PLAN

RIO GRANDE, INC., a Delaware corporation (the "Company"), hereby
formulates and adopts the following 1995 Non- Qualified Stock Option Plan (the
"Plan") for non-employee directors of the Company and its subsidiaries.

1. PURPOSE. The purpose of this Plan is to secure for the Company
the benefits of the additional incentive inherent in the ownership of its
Common Stock by selected non-employee directors of the Company and its
subsidiaries who are important to the success and the growth of the business of
the Company and its subsidiaries, and to help the Company and its subsidiaries
secure and retain the services of such directors.

2. COMPENSATION COMMITTEE. This Plan shall be administered by the
Compensation and Stock Option Committee (the "Committee") of the Board of
Directors of the Company, to be appointed by at least a majority of the whole
Board of Directors. The Committee will consist of not less than two (2)
"disinterested" Directors as provided by Section 16b(3) of the Securities and
Exchange Act, as amended. The Committee shall select one of its members as
Chairman and shall adopt such rules and regulations as it shall deem
appropriate concerning the holding of its meetings and the transaction of its
business. A majority of the whole Committee shall constitute a quorum, and the
act of a majority of the members of the Committee present at a meeting at which
a quorum is present shall be the act of the Committee. Any member of the
Committee may be removed at any time either with or without cause by resolution
adopted by the Board of Directors of the Company; and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board of
Directors.

3. GRANT OF OPTIONS. Each individual who is not an employee of the
Company or its subsidiaries at the time he or she is elected as a director of
this Company (an "Outside Director"), and who previously has not been granted
options under this Plan of the Company, upon approval of the Plan by the
shareholders or the subsequent date of his or her initial election to the Board
of Directors of the Company, shall be granted an option to purchase 50,000
shares of Common Stock of the Company (the "Common Stock"). Upon subsequent
re-election to the Board of Directors, each Outside Director to whom options
have been granted pursuant to the preceding sentence shall be granted, on the
date of re-election, an option to purchase an additional 5,000 shares of
Common Stock under this Plan. The maximum number of shares that may be subject
to options granted to an individual Outside Director under this Plan shall be
75,000, as adjusted pursuant to paragraph 12.

In the event, one or more Outside Directors is entitled to
receive an option and the grant of such option will cause the number of shares
of Common Stock subject to options under this Plan to exceed 525,000, the
option or options issued to the Outside Directors shall be limited to the
number of shares of Common Stock that will not cause the total number subject
to options under this Plan to exceed such maximum. The options shall be
granted to the Outside Directors, to the extent possible, by allocating the
shares of Common Stock that may be subject to such options as follows:

Exhibit B
-1-
<PAGE> 26
(a) First, shares shall be allocated equally to those Outside
Directors entitled to receive their initial option; and

(b) Any shares remaining after such allocations shall be
allocated equally to those Outside Directors re-elected and
entitled to receive a grant of an option to purchase any
additional 5,000 shares of Common Stock.

Any Outside Director's right to receive the grant of an option
hereunder shall not be cumulative, and his or her right to a grant upon
election or re-election shall expire if it is disallowed on account of the
foregoing limitation.

4. STOCK SUBJECT TO OPTIONS. Subject to the provisions of
paragraph 12, the number of shares of the Company's Common Stock subject at any
one time to options, plus the number of such shares then outstanding pursuant
to exercises of options granted under this Plan, shall not exceed 525,000. If,
and to the extent the options granted under this Plan terminate or expire
without having been exercised, new options may be granted with respect to the
shares covered by such terminated or expired options; provided that the
granting and terms of such new options shall in all respects comply with the
provisions of this Plan.

5. OPTION PRICE. The option price of each share of Common Stock
purchasable under any option granted under this Plan shall be computed by
formula. The option price shall be the fair market value of the Common Stock
at the time the option is granted or as otherwise provided below, and shall be
set forth in the option agreement. The fair market value of the Common Stock
on any day shall be the mean between the highest and lowest quoted selling
prices of the Common Stock on such day as reported by the national stock
exchange on which such stock is listed. If no sale shall have been made on
that day, the average of the highest and lowest quoted selling prices of the
Common Stock for five (5) consecutive trading days before the day of the grant
shall become the Option Price. If no sale shall have been made, or if the
Company Stock is not listed on a national exchange, the Option Price shall be
determined by dividing the Company's shareholders' equity at the end of the
immediately preceding fiscal quarter by the total outstanding Common Stock on
the day of the grant and multiplying by 1.2 to calculate the Option Price.

6. EXPIRATION AND TERMINATION OF THE PLAN. Options shall be
granted under this Plan according to the provisions of paragraph 3, from the
date of approval by the shareholders until January 31, 2005, on which date this
Plan will expire, except as to options then outstanding under this Plan. Such
options shall remain in effect until they have been exercised or have expired.
This Plan may be terminated or modified at any time prior to January 31, 2005,
by the Board of Directors except with respect to any options then outstanding
under this Plan; provided that any increase in the maximum number of shares
subject to options, as specified in paragraph 4; any decrease in the minimum
option price specified in paragraph 5; or any amendment to paragraph 3 that
expands the

Exhibit B
-2-
<PAGE> 27
class of persons entitled to receive an option to purchase shares of Common
Stock or increases the number of shares of Common Stock any person is granted an
option to purchase shall be subject to approval by the Company's shareholders,
unless made pursuant to the provisions of paragraph 12.

No modification, extension, renewal or other change in any
option granted under this Plan shall be made after the grant of such option
unless the same is consistent with the provisions of this Plan.

7. EXERCISABILITY AND DURATION OF OPTIONS.

(a) All options granted under this Plan shall become exercisable
after the expiration of one (1) year following the date on which the option was
granted.

(b) The unexercised portion of any option shall automatically and
without notice, terminate and become null and void at the time of the earliest
to occur of the following:

(1) The expiration of ten (10) years from the date on which
the option was granted;

(2) The expiration of ninety (90) days from the date the
Outside Director ceases to serve as a member of the Board of Directors,
for any reason whatsoever, other than by reason of death; provided that
if the Outside Director shall die during such 90-day period, the
provisions of subparagraph (3) below shall apply:

(3) The expiration of one (1) year following the issuance of
letters testamentary or letters of administration to the executor or
administrator of a deceased Outside Director, if the Outside Director's
death occurs either during the period of his or her service on the
Board of Directors or during the 90-day period following the date such
director ceases to serve as a director, but not later than one (1) year
after the Outside Director's death.

8. EXERCISE OF OPTIONS. The option granted herein shall be
exercised by the Outside Director (or by his executors or administrators, as
provided in paragraph 10) as to all or part of the shares covered by the
Option, by giving written notice of the exercise thereof to the Company at its
principal business office, specifying the number of shares to be purchased, and
specifying a business day (the "exercise date") not less than five (5) days nor
more than fifteen (15) days from the date such notice is given, for the payment
of the purchase price against delivery of the shares being purchased. In such
notice, the Outside Director shall elect whether he is to pay for his shares in
cash or in Common Stock of the Company, or both, and if payment is to be made
in Common Stock, it shall be valued at its fair market value on the date of
such notice, as determined under paragraph 5. The giving of such written
notice to the Company shall constitute an irrevocable election to purchase the
number of shares specified in the notice on the date specified in the notice.

The Company shall cause certificates for any shares to be
delivered to the Outside Director or his executors or administrators at its
principal business office within five (5) business days after the exercise
date.

An amount equal to the income taxes required to be withheld by
the Company from the Outside Director with respect to such exercise must be
paid to the Company on the date of such delivery.

Exhibit B
-3-
<PAGE> 28
9. NONTRANSFERABILITY OF OPTIONS. No option granted under this Plan
or any right evidenced thereby shall be transferable by the Outside Director
other than to the Outside Director's executors or administrators by will or the
laws of descent and distribution. During the lifetime of an Outside Director,
he alone may exercise his options.

10. RIGHTS OF OPTIONEE. Neither the Outside Director nor his
executors or administrators shall have any of the rights of a shareholder of
the Company with respect to the shares subject to an option granted under this
Plan until certificates for such shares shall have been issued upon the
exercise of such option.

11. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
option granted under this Plan shall confer upon any Outside Director the right
to continue to serve as a director of the Company or affect the right of the
shareholders to remove the Outside Director at any time.

12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event
of any stock split, stock dividend, reclassification or recapitalization which
changes the character or amount of the Company's outstanding Common Stock while
any portion of any option theretofore granted under this Plan is outstanding
but unexercised, the Committee shall make such adjustments in the character and
number of shares subject to such options and in the option price as shall be
equitable and appropriate in order to make the option, if any, as nearly as may
be practicable, equivalent to such option immediately prior to such change;
provided that no such adjustment shall give the Outside Director any additional
benefits under his option.

If the Company participates in any transaction resulting in a
corporate merger, consolidation, separation, reorganization or liquidation, the
Board of Directors of the Company or any surviving or acquiring corporation
shall take such action as is equitable and appropriate to substitute a new
option for an old option, or to assume the old option, in order to make the new
option, as nearly as may be practicable, equivalent to the old option. The
issuance of additional stock, common or preferred, in exchange for cash or
property shall not be an event for which adjustments will be made pursuant to
this paragraph.

If any such change or transaction shall occur, the number and
kind of shares for which options may thereafter be granted under this Plan
shall be adjusted to give effect thereto.

13. PURCHASE FOR INVESTMENT AND LEGALITY. The Outside Director, by
his acceptance of any option granted under this Plan, shall represent and
warrant to the Company that his purchase or receipt of shares of Common Stock
upon the exercise thereof shall be for investment and not with a view to
distribution, provided that such representation and warranty shall be
inoperative if, in the opinion of counsel to the Company, a proposed sale or
distribution of such shares is pursuant to an applicable effective registration
statement under the Securities Act of 1933 or is without such representation
and warranty exempt from registration under such Act.

Exhibit B
-4-
<PAGE> 29
The Company may endorse an appropriate legend referring to the
foregoing restrictions upon the certificate or certificates representing any
shares issued or transferred to the Outside Director upon the exercise of any
option granted under this Plan.

14. EFFECTIVE DATE OF PLAN. This Plan shall become effective upon
its approval by the Company's shareholders.

Exhibit B
-5-
<PAGE> 30
EXHIBIT "B"

RIO GRANDE, INC.

STOCK OPTION

KNOW ALL MEN BY THESE PRESENTS: That RIO GRANDE, INC. (The "Company")
having adopted a 1995 Non-Qualified Stock Option Plan (the "Plan"), hereby
grants to ___________________________________ (the "Optionee") the right and
option to purchase _____________ shares of the Common Stock of the Company on
the following terms and conditions:

1. The option granted herein shall become exercisable after the
expiration of one (1) year following the date hereof.

2. As a director but not an employee of the Company ("Outside
Director"), the unexercised portion of the option granted herein shall
automatically and without notice, terminate and become null and void at
the time of the earliest of the following to occur:

(a) the expiration of ten (10) years from the date on which
this option is granted;

(b) the expiration of ninety (90) days from the date the
Optionee ceases to serve as a member of the Board of Directors,
for any reason whatsoever, other than by reason of death;
provided that if the Optionee shall die during such 90-day
period the provisions of subparagraph (c) below shall apply;

(c) the expiration of one (1) year after the issuance of
letters testamentary or letters of administration to the
executor or administrator of the Optionee if the Optionee's
death occurs either during the period of his or her service on
the Board of Directors or during the 90-day period following the
date the Optionee ceases to serve as an Outside Director, but
not later than one (1) year after Optionee's death.

4. The option granted herein shall be exercised by the Optionee (or
by his executors or administrators, as provided in paragraph 9) as to all or
part of the shares covered hereby, by the giving of written notice of such
exercise to the Company at its principal business office, specifying the number
of shares to be purchased, and specifying a business day (the "exercise date")
not less than five (5) days nor more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price against delivery of the
shares being purchased. In such notice, the Optionee shall elect whether he is
to pay for his shares in cash or in Common Stock of the Company, or both, and
if payment is to be made in Common Stock, it shall be valued at its fair market
value on the date of such notice. The giving of such written notice to the
Company shall constitute an irrevocable election to purchase the number of
shares specified in the notice and to exercise the right on the date specified
in the notice.

Exhibit B
-6-
<PAGE> 31
An amount equal to the income taxes required to be withheld by
the Company from the Optionee with respect to such exercise must be paid to the
Company on the date of such delivery.

5. The purchase price of the shares which may be purchased pursuant
to the option granted herein shall be $_____ per share.

6. Neither the Optionee nor his executors or administrators shall
have any of the rights of a shareholder of the Company with respect to the
shares subject to this option until a certificate or certificates for such
shares shall have been issued upon the exercise of this option.

7. Nothing in this option agreement shall confer upon the Optionee
the right to continue to serve as a director of the Company or affect the right
of the shareholders to remove the Optionee from his or her position as a
director at any time.

8. The option granted herein shall not be transferable by the
Optionee other than to his executors or administrators by will or the laws of
descent and distribution, and during the Optionee's lifetime shall be
exercisable only by him.

9. In the event of the Optionee's death during his term as a member
of the Board of Directors, or during the 90-day period following the date on
which he ceases to serve in such capacity, this option shall thereafter be
exercisable, as provided in paragraph 2(c), only by his executors or
administrators.

10. In the event of any stock split, stock dividend,
reclassification, or capitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of this option is
outstanding but unexercised, the Compensation Committee appointed under the
Plan shall make such adjustments in the character and number of shares subject
to such unexercised portion of this option, and in the option price, as shall
be equitable and appropriate in order to make the option, as nearly as may be
practicable, equivalent to this option immediately prior to such change;
provided that no adjustment shall give the Optionee any additional benefits
under this option.

If the Company participates in any transaction resulting in a
corporate merger, consolidation, separation, the issuance of additional stock,
common or preferred, in exchange for cash or property shall not be an event for
which adjustments will be made pursuant to this paragraph.

11. The Optionee, by his acceptance hereof, represents and warrants
to the Company that his purchase of shares of Common Stock upon the exercise
hereof shall be for investment and not with a view to distribution, provided
that this representation and warranty shall be inoperative if, in the opinion
of counsel to the Company, a proposed sale or distribution of such shares is
pursuant to an applicable effective registration statement under the Securities
Act of 1933 or without such representation and warranty is exempt from
registration under such Act.

Exhibit B
-7-
<PAGE> 32
rules and regulations under any of the foregoing and applicable requirements of
any securities exchange upon which the Company's securities shall be listed.

IN WITNESS WHEREOF, the Company has caused these presents to be signed
by its officer duly authorized thereto this _____ day of _______________, 199__.

RIO GRANDE, INC.
ATTEST:

_________________________ By:____________________________________
Secretary Title:_________________________________

ACCEPTED AND AGREED TO:

_________________________
OPTIONEE

Exhibit B
-8-
<PAGE> 33
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
OF RIO GRANDE, INC.

The undersigned hereby appoints Robert A. Buschman, Guy R. Buschman and
Gary Scheele (to act by majority decision if more than one shall act), and each
of them, with full power of substitution, to vote all shares of Common Stock of
Rio Grande, Inc. that the undersigned is entitled to vote at the annual meeting
of shareholders thereof to be held on June 1, 1995 or at any adjournments
thereof.

ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE
DIRECTED, WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.

YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.

(Continued and to be signed on reverse side)
<PAGE> 34
[ X ] Please mark your
votes as this

ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.

______________________________________
COMMON

(1) ELECTION OF DIRECTORS

FOR all nominees listed (except as WITHHOLD AUTHORITY
marked to the contrary at right, to vote for any
see instructions) nominees listed

[ ] [ ]

Guy R. Buschman, Robert A. Buschman, John G. Hurd, H.M. Shearin, Jr.,
Hobby A. Abshier, Ralph F. Cox

(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)

_______________________________________________________________________

(2) To approve the 1995 Incentive Stock Option Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

(3) To approve the 1995 Non-Qualified Stock Option Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

(4) To approve the selection and KPMG Peat Marwick, LLP as the Company's
independent auditors for the 1996 fiscal year.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

(5) To vote on other business that may properly come before the meeting.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

The undersigned acknowledges receipt
of the Notice of the Annual Meeting and
Proxy Statement dated May 10, 1995.

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
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.

DATED:____________________________, 1995

________________________________________
Signature of Stockholder

PLEASE DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.