NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS OF RIO GRANDE, INC.
TO BE HELD ON JULY 1, 1996
The Annual Meeting of the Stockholders 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
July 1, 1996 at 10:00 A.M. to elect directors of the Company, to approve an
Amendment to the Company's Certificate of Incorporation to authorize preferred
stock, 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 have chosen the close of business on May 8, 1996 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: June 5, 1996
BY ORDER OF THE BOARD OF DIRECTORS:
GARY SCHEELE, Secretary
<PAGE>
RIO GRANDE, INC.
10101 Reunion Place, Suite #210
San Antonio, Texas 78216-4156
PROXY STATEMENT
For Annual Meeting of Shareholders
to be held July 1, 1996
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 Stockholders of the Company to be held at
the office of Rio Grande, Inc., 10101 Reunion Place, Suite 210, San Antonio,
Texas, on July 1, 1996, 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 stockholders is June 5, 1996.
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. Abstentions and broker nonvotes shall be treated as present
for purposes of determining the presence of a quorum. Regarding the election of
Directors to serve until the 1997 Annual Meeting of stockholders, in voting by
proxy, stockholders 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, stockholders may vote in favor of a
proposal, against a proposal or may abstain from voting. Stockholders 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
approval of the Amendments to the Certificate of Incorporation of the Company
authorizing preferred stock ("Amendment"), 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
plurality of the votes cast by the holders of the shares of Common Stock voting
in person or by proxy at the Annual Meeting. Assuming the presence of a quorum,
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.
-1-
<PAGE>
Abstentions and broker nonvotes will have no effect on the outcome of the vote
for directors or for ratification of the independent auditor. Approval of the
Amendment requires the affirmative vote of the holders of majority of the
outstanding shares of Common Stock entitled to vote. In determining whether the
Amendment has received the requisite number of affirmative votes, abstentions
and broker nonvotes have the same effect as votes against the Amendment.
Only owners of record of shares of Common Stock of the Company at the close
of business on May 8, 1996, 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 May 8, 1996, there were 5,552,760 shares of Common
Stock of the Company issued and outstanding.
PRINCIPAL STOCKHOLDERS
The following table provides information known to the Company as to the
Common Stock ownership, as of May 8, 1996, 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:
Name and Address of Amount of Beneficial
Beneficial Owner Ownership of Common
- - - ------------------------------- ---------------------------
Shares % of Class
--------- ------
Robert A. Buschman (1) 1,235,920 15.84%
10101 Reunion Place, Suite 210
San Antonio, Texas
Guy Bob Buschman (1) 1,465,570 18.79%
10101 Reunion Place, Suite 210
San Antonio, Texas
John G. Hurd (1) 850,400 10.90%
4040 Broadway, Suite 525
San Antonio, Texas
Edward Randall, III (1) 838,800 11.14%
5851 San Felipe, Suite 850
Houston, Texas
H. M. Shearin, Jr. (1) 150,000 1.92%
2002 Encino Vista
San Antonio, Texas
Ralph F. Cox (1) 178,000 2.28%
200 Rivercrest Drive
Fort Worth, Texas
-2-
<PAGE>
Name and Address of Amount of Beneficial
Beneficial Owner Ownership of Common
- - - ------------------------ ----------------------------------
Shares % of Class
------ ----------
H. A. Abshier, Jr. (1) 75,000(2) 1.00%
4901 Spicewood Springs Road, Suite 200 (3)
Austin, Texas
Officers, directors and nominees for directors 5,088,690 (2) 65.24%
as a group (7 persons) (3)
(1) Information as to beneficial ownership has been furnished by the
respective stockholders. 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 $0.45 per share: Robert A. Buschman, 145,000
options; Guy R. Buschman, 160,000 options; H. A. Abshier, Jr., 50,000
options; John G. Hurd, 50,000 options; Ralph F. Cox, 50,000 options;
H.M. Shearin, Jr., 150,000 options; Gary Scheele, 265,000 options.
(3) Includes warrants to purchase 25,000 shares of Common Stock at any time
at an exercise price of $0.20 per share.
(4) Includes 600,000 shares held in trusts, of which Mr. Randall is
Co-Trustee. Mr. Randall is neither an employee nor a director of the
Company.
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.
-3-
<PAGE>
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. All of the nominees for Director named in the following table are now
serving as Directors of the Company.
Director
Name Position Age Since
- - - ------------------ ---------------------- ---- -----
Robert A. Buschman Chairman of the Board 69 1979
of Directors
Guy Bob Buschman President and Director 45 1978
John G. Hurd Director 81 1982
H. M. Shearin, Jr Director 73 1992
Hobby A. Abshier Director 64 1995
Ralph F. Cox Director 63 1995
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 Bob Buschman, President and a Director, organized the Company in April
1978. Mr. 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. He is
presently a Director of Texas Mid- Continent Oil & Gas Association.
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 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.
H. A. ("Hobby") Abshier, Jr. is a General Partner of the AM Fund and for
the past 12 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
-4-
<PAGE>
Rotan Mosle, Inc., a regional investment banking firm, as a partner, officer 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. in 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 stockholders 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, Cox
and Abshier. 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,
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, 1996, the Board held three
meetings which were attended by all the Directors. There was one meeting of the
Audit Committee attended by all members, and one meeting of the Compensation and
Stock Option Committee. The non-employee Directors serving on the Board's Audit
and Compensation and Stock Option Committees receive $100 per committee meeting.
-5-
<PAGE>
Executive Officers
The following individuals serve as Executive Officers of the Company and
have been elected by the Board to serve in positions indicated for the terms
indicated in the Bylaws of the Company.
Robert A. Buschman Chairman and Chief Executive Officer
Guy Bob 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 President for services rendered to the Company
during the fiscal year ended January 31, 1996. No executive compensation
exceeded $100,000 during the fiscal year ended January 31, 1996.
Annual Compensation Long-term Compensation
-------------------------------- ------------------------
(2) Restricted
Name and Fiscal Salary Bonus Other Stock Options All
Principal Position Year $ $ $ Awards # Other
- - - -------------------- ------ ------ ---- ------ ------ ------ -----
Robert A. Buschman 1996 84,788 -- 9,349 -- -- --
Chairman and Chief
Executive Officer 1995 84,630 -- 24,920 -- -- --
1994 83,000 -- 24,810 -- -- --
Guy Bob Buschman 1996 84,788 -- 12,583 -- -- --
President
1995 84,630 -- 13,574 -- -- --
1994 83,000 -- 19,531 -- -- --
(2) Includes the cost to the Company of the personal use of a Company
vehicle, group life insurance premiums and other miscellaneous personal
benefits paid by the Company.
-6-
<PAGE>
Options/Grants in Last Fiscal Year
The following table presents certain information concerning grants of stock
options made during the fiscal year ended January 31, 1996 to the Chief
Executive and the President as named in the Summary Compensation Table above.
Percent of
Total Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year ($/sh) Date
---- ------- ------------- -------- ----------
Robert A. Buschman, Chairman 100,000 29.80% $0.45 01-June-2002
and Chief Executive Officer
Guy Bob Buschman, President 100,000 29.80% $0.45 01-June-2002
Aggregate Option Exercises and Fiscal Year-End Option Value Table
The following table presents certain information regarding the exercise of
options during fiscal 1996, and options held at January 31, 1996 by Robert A.
Buschman, Chairman of the Board and Chief Executive Officer of the Company and
Guy Bob Buschman, President.
Number of Value of
Unexercised Unexercised
Options at Options at
January 31, 1996 January 31, 1996
Shares ----------------- -----------------
Acquired (3)
on Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
-------- -------- ------- ------- ------- -------
Robert A. Buschman - - 145,000 - $ - -
Guy Bob Buschman - - 160,000 - - -
(3) There are no listed market quotes for the Company's common stock. The
exercise price of the unexercised options is approximately equivalent
to the Company's book value per share at January 31, 1996.
-7-
<PAGE>
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, Jr. and H. A.
Abshier, Jr. served as a consultants to the Company during the year ended
January 31, 1996 and were paid total fees of $18,000 and $35,000 respectively.
Other Compensation
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") terminated December 31, 1995. Any 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 Company received approval from stockholders for the 1995 Incentive
Stock Option Plan ("95 Incentive Plan") and the 1995 Non-Qualified Stock Option
Plan ("95 Non-Qualified Plan")(collectively, the "95 Plans") at the 1995 Annual
Stockholder's Meeting. The 95 Plans are anticipated to assist the Company in
attracting, motivating and retaining key employees and non-employee directors.
The 95 Plans are administered by the Compensation and Stock Option Committee of
the Board of Directors.
The following discussion summarizes the material differences between the 95
Plans.
The 95 Incentive Plan. The Company has reserved 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 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.
The 95 Non-Qualified 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
-8-
<PAGE>
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 stockholders' 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 re-election of the non-employee
nominees as directors of the Company at the Annual Meeting will entitle
each such nominee options to purchase 5,000 shares of the Company Stock
at an approximate price of $0.40, 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 95 Incentive 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 as 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 95 Incentive Plan or the exercise of such an option by the participant. If
the 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
-9-
<PAGE>
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 95 Non-Qualified 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.
WARRANTS
On September 27, 1995 the Company consummated a private offering of 11.50%
Subordinated Notes for a total principal amount of $2,000,000 combined with
issuance of Warrants to the note purchasers ("Holders") which provided for the
purchase of up to 1,388,160 shares of the Company's Class A Common Stock, par
value $.01 per share, at an exercise price of $0.40 per share. In connection
with obtaining the consent of the Holders to certain amendments to the
Subordinated Notes (and certain other consents) as part of the refinancing of
the Company's senior indebtedness, the exercise price of the Warrants was
reduced to $0.20 per share. The Warrants remain outstanding for seven years from
the date of the Closing, unless they are detached from the Notes and transferred
to persons who are not affiliates of the initial holder of the Warrants, in
which case they expire on the 31st date following such transfer. The Common
Stock reserved for issuance upon exercise of the Common Stock the Warrants
represents twenty percent (20%) of the Company's common stock, exclusive of
certain shares issuable upon the exercise of executive stock options.
The number of shares of Common Stock of the Company subject to purchase
pursuant to the Warrant also adjusts under certain circumstances. The number of
shares subject to the Warrants shall be adjusted proportionately and the
exercise price shall be adjusted proportionately, for any stock splits or stock
dividends. If the Company declares and pays any dividends other than in common
stock or cash, or makes any other distributions, to holders of common stock,
then the holders of the Warrants, upon exercise of the Warrants, are entitled to
receive their respective pro-rata share of the dividend, distribution, or right
which they would have received if they had exercised the Warrant before the
declaration of the dividend, distribution, or right, or, at the Company's
option, the number of shares subject to the Warrant shall be adjusted
appropriately.
If at any time while the Warrant is outstanding the Company grants to all
-10-
<PAGE>
holders of its common stock any rights, options or warrants entitling them to
purchase shares of common stock at a price per share lower at the record date
for such issuance than the fair market value on such date, then the number of
shares of common stock subject to the Warrants shall be adjusted
proportionately. Alternatively, the Company may grant and convey to the holder
of the Warrants the rights that such holder would have received had it exercised
the Warrant before issuance of the rights. An appropriate readjustment would be
made to the number of shares of common stock subject to the Warrants upon
expiration or termination of any of the rights.
In case of any capital reorganization or reclassification of the capital
stock of the Company, the holder of the Warrant shall thereafter be entitled to
purchase pursuant to the Warrant the kind and number of shares of any stock or
class or classes or other securities or property for or into which such shares
of common stock would have been exchanged, converted, or reclassified if the
Warrant stock had been purchased immediately before such reorganization or
reclassification.
The number of shares subject to the Warrant and/or the exercise price of
the Warrants shall also be adjusted in the event certain options to purchase
shares of Common Stock pursuant to stock option plans of the Company are
exercised.
Under the Warrants, the Company is required to give 30 days prior written
notice to holders of record of the Warrants of significant events, including
payment of dividends, reorganization or reclassification, merger, liquidation,
dissolution, or other fundamental changes.
The Warrants carry piggyback registration rights requiring the Company to
deliver notice of its intent to file registration statement for the public sale
of its common stock to the holders of the Warrants not later than 30 days prior
to the initial filing of the registration statement, setting forth the minimum
and maximum proposed offering price, commissions, discounts in connection with
the offering, and other relevant information. Within twenty days after receipt
of the notice, holders of Warrants are entitled to request that the Warrant
stock be included in such registration statement and the Company will use its
best efforts to cause such Warrant stock to be included in the offering covered
by such registration statement. In the event the underwriter of the offering
determines that the inclusion of all of the stock requested to be registered
(including the Warrant Stock) would adversely affect the offering, the inclusion
of shares owned by holders other than the Company are subject to pro rata
reduction in accordance with the number of shares requested to be included by
such holders.
INCREASE IN AUTHORIZED STOCK
The Board of Directors of the Company (the 'Board) has unanimously approved
an amendment to Paragraph 4, of the Certificate of Incorporation of the Company
(the "Certificate") which would increase the number of authorized shares of
Common Stock and Preferred Stock that the Company is authorized to issue. The
proposed amendment (the "Authorized Stock Amendment") is set forth in its
entirety in Exhibit A to this Proxy Statement.
The Certificate currently authorize the issuance of 10,000,000 shares of
Common Stock of which 5,552,760 shares were issued and outstanding as of May 8,
1996. In addition, 1,388,160 shares of Common Stock are reserved for issuance
upon exercise of Warrants issued in connection with the Notes and 1,400,000
shares of Common Stock are reserved for issuance upon the exercise of Options
-11-
<PAGE>
granted under the 86 and 95 Plans. The Certificate currently does not authorize
Preferred Stock.
If approved, the increased number of authorized shares of Common Stock and
Preferred Stock would be available for issuance from time to time for such
purposes and consideration as the Board may approve and no further vote of
stockholders of the Company will be required, except as provided by the
Certificate, under Delaware law, or the rules of any national securities
exchange on which shares of Common Stock of the Company are at the time listed
or quoted.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock now authorized. Holders of
Common Stock do not have preemptive rights to subscribe to additional securities
which may be issued by the Company. The shares of Preferred Stock for which
authorization is sought would be undesignated as to series. The Board, without
further shareholder authorization, would be authorized to issue shares of
Preferred Stock in one or more series with such voting powers, designations,
preferences, and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions relating thereto, including
voting rights, dividends, rights on liquidation, dissolution or winding up of
the Company, conversion or exchange rights and redemption provisions, if any, as
the Board of Directors may provide and as permitted by Delaware law. The
issuance in the future of Preferred Stock or the designation of authorized but
unissued shares of Preferred Stock with voting and other rights, which may be
established in the discretion of the Board, may be used by the Company to create
voting impediments or otherwise delay or prevent a change in control of the
Company. By issuance of Preferred Stock, the Board could modify the relative
rights of holders of Common Stock.
The additional shares of Common Stock and Preferred Stock for which
authorization is sought would be available for issuance by the Company by action
of the Board and could be used for purposes that might be deemed to be in
defense of a potential takeover threat.
The authorization of additional shares of common and a new class of
preferred stock would give the Board of Directors greater flexibility in meeting
the Company's financing requirements through issuance of additional equity or
equity-linked securities, in effecting future transactions such as acquisitions,
mergers, stock splits or stock dividends, and in meeting other corporate needs
as they arise. Authorization of additional common and a class of preferred stock
would generally permit the Board of Directors, if it deemed it advisable, to
issue such additional equity securities or equity- linked securities in
connection with the financing transactions without the necessity for further
stockholder approval. While the Company has no specific proposals under
consideration on the date of this proxy statement, it is likely that the Board
of Directors will consider the issuance of additional equity securities in
connection with near-term financing needs, and any such issuances could be
significantly dilutive to the interests of current holders of Company Common
Stock.
Under the Delaware General Corporation Law, the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
entitled to notice of and to vote at the Annual Meeting is required to adopt the
Authorized Stock Amendment.
The Board recommends that stockholders vote FOR the Authorized Stock
Amendment.
-12-
<PAGE>
RELATED PARTY TRANSACTIONS
In June 1992, Rio Grande Drilling Company ("Drilling") a Texas corporation
and wholly owned subsidiary of the Company, formed a Texas limited partnership,
Rio Grande Offshore, Ltd. ("Offshore") to acquire certain non-operated offshore
and onshore oil and gas properties. Substantially all of the oil and gas
properties leasehold interests of the Company as of January 31, 1996 were held
through Offshore with the limited partners being Rio Grande Desert Oil Company
("Desert"), a Nevada corporation and wholly owned subsidiary of Drilling with a
79% limited partnership interest, Robert A. Buschman, Chairman of the Board with
a 10% limited partnership interest and H. Wayne Hightower and H. Wayne
Hightower, Jr. (collectively, "Hightowers") with 7% and 3% limited partnership
interests, respectively. Drilling was the sole general partner with a 1%
ownership interest. Prior to January 31, 1996, Buschman made capital
contributions equivalent to his ten percent (10%) ownership interest in
Offshore. Under the partnership agreement, however, Drilling was not entitled to
reimbursement for general and administrative expenses associated with the
properties such as costs and expenses associated with the maintenance of the
books and records of Offshore or the preparation of any type of financial
statement or report with respect to Offshore operations unless such documents
were prepared by a third party.
Under the partnership agreement, Drilling received a monthly fee of $1,000
per month, $12,000 annually, as compensation for the general and administrative
services it rendered to Offshore. For fiscal years ended January 31, 1995 and
1996, the Company's total general and administrative expenses were $1,163,000
and $1,336,000, respectively. As the operator of certain oil and gas wells,
Drilling proportionately charged participating working interest owners,
including Offshore, for overhead based on COPAS monthly rates. COPAS overhead
rates are charged on an individual well basis to reimburse the operator for
general costs of executive and administrative functions incurred at the home
office. COPAS fees of $432,000 and $664,000 were charged to Offshore for the
fiscal years ended January 31, 1995 and 1996. For fiscal years ended January 31,
1995 and 1996, general and administrative expenses of $719,000 and $660,000 were
not chargeable and thus absorbed by the Company.
The limited partners agreed to restructure Offshore effective February 1,
1996, whereby the 20% limited partnership interest of Buschman and Hightowers
would be redeemed and, as a result of a distribution to them in consideration
for the redemption, Buschman and Hightowers would become proportionate
individual working interest owners of the onshore oil and gas properties
previously owned through their proportionate limited partnership interests in
Offshore. The restructure also provided that the existing offshore oil and gas
properties located offshore Louisiana ("OCS Properties") held by Offshore be
conveyed into a new Texas limited partnership, Rio Grande GulfMex, Ltd.
("GulfMex"), with the same beneficial ownership in the OCS Properties as
Offshore prior to the restructuring. Offshore is the sole general partner. The
partnership agreement for GulfMex is substantially the same as the existing
Offshore partnership agreement.
As a result of the restructuring, Buschman and Hightowers individually own
20% of the onshore oil and gas properties leasehold working interests and a 20%
limited partnership interest in GulfMex. Buschman and Hightowers no longer are
limited partners in Offshore, however, the reorganized Offshore ("Offshore-New")
remains in existence as a Texas limited partnership with Drilling as the general
partner with a 1.25% partnership interest and Desert a 98.75% limited partner.
Drilling has been operating many of the onshore leases where Buschman and the
Hightowers will be the non-operating working interest owners. Buschman and the
-13-
<PAGE>
Hightowers, as working interest owners, will be subject to existing standard
joint oil and gas operating agreements for each of the individual onshore
leasehold interests. Offshore-New, Buschman and the Hightowers will each be
subject to individual operating agreements with third party operators for
non-operated oil and gas leasehold interests. With regard to the OCS properties
held by GulfMex, Offshore-New will receive a management fee of $500 per month
for serving as the general partner of GulfMex. Since the OCS Properties are
operated by a third party, the Company believes the expenses associated with
administering the OCS Properties for GulfMex will be nominal.
As an additional consideration for the restructure, Buschman and Hightowers
retained the right to participate in the acquisitions of oil and gas properties
in those areas where Offshore had properties as of the effective date of the
restructuring. Any participation in subsequent acquisition of oil and gas
properties in those areas of mutual interest will be on a basis proportionate to
the interests of Buschman and Hightowers in Offshore prior to the restructure.
On March 26, 1996, Buschman and Hightowers exercised this right by purchasing
their proportionate 20% interests in the $500,000 acquisition Offshore-New made
of three gas wells located in Wheeler County, Texas.
H. M. Shearin, Jr. and H. A. Abshier, Jr., non-employee Directors of the
Company, served as consultants to the Company for the year ended January 31,
1996 and were paid total fees of $18,000 and $35,000, respectively.
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 stockholders, to serve as the Company's independent
auditors for the fiscal year commencing February 1, 1996. 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 1996, its officers, directors and 10% beneficial
owners complied with all applicable reporting requirements.
-14-
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a Proposal for inclusion in the proxy
material and presentation at the 1997 Annual Meeting of Stockholders 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 15, 1997.
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.
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 STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
THIS PROXY STATEMENT IS ACCOMPANIED WITH THE COMPANY'S FORM 10-KSB. 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-KSB,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED JANUARY 31, 1996.
SUCH WRITTEN REQUEST IS TO BE DIRECTED TO THE ATTENTION OF 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: June 5, 1996
-15-
<PAGE>
EXHIBIT "A"
AUTHORIZED STOCK PROVISIONS FOR CERTIFICATE OF INCORPORATION
The total number of shares of stock which the Corporation shall have
authority to issue is 15,000,000 shares, consisting of (a) 12,000,000 shares of
Common Stock, par value of $.0l per share (the "Common Stock"), and (b)
3,000,000 shares of preferred stock, par value $.0l per share (the "Preferred
Stock").
The Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized, at any time and from time to time, to fix, by resolution
or resolutions, the following provisions for shares of any class or classes of
Preferred Stock of the Corporation or any series of any class of Preferred
Stock:
(a) the designation of such class or series, the number of shares to
constitute such class or series and the stated value thereof if different from
the par value thereof;
(b) whether the shares of such class or series shall have voting rights,
which may (i) be general or limited, (ii) subject to applicable law or
regulation including, without limitation, the rules of any securities exchange
on which securities of any class of the Corporation may be listed, permit more
then one vote per share, or (iii) vary among stockholders of the same class
based upon such factors as the Board of Directors may determine including,
without limitation, the size of a stockholders position and/or the length of
time with respect to which such position has been held;
(c) the dividends, if any, payable on such class or series, whether any
such dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of the same class;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such class or series upon,
and the rights of the holders of such class or series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any distribution of
the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such class or series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other series of
the same class or any other securities (including the Common Stock) and, if so,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
Exhibit A-1
-16-
<PAGE>
(h) the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of the same class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
(j) the ranking (be it pari passu, junior or senior) of each class or
series vis-a-vis any other class or series of any class of the Preferred Stock
as to the payment of dividends, the distribution of assets and all other
matters; and
(k) any other powers, preferences and relative, participating, optional and
other special rights, and any qualifications, limitations and restrictions
thereof, insofar as they are not inconsistent with the provisions of this
Certificate of Incorporation, to the full extent permitted in accordance with
the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of the Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes or series at any time outstanding.
Exhibit A-2
-17-
<PAGE>
