ERLY INDUSTRIES INC, DEF 14A, 1995-08-15

ERLY INDUSTRIES INC
DEF 14A, 1995-08-15
GRAIN MILL PRODUCTS

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<PAGE> 1

ERLY INDUSTRIES INC.
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held September 6, 1995

TO THE SHAREHOLDERS OF ERLY INDUSTRIES INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ERLY
Industries Inc. (the "Company"), a California corporation, will be held on
Wednesday, September 6, 1995 at 10:00 a.m., at the Westwood Marquis Hotel, 930
Hilgard Avenue, Los Angeles, California, for the following purposes as more
fully described in the accompanying proxy statement:

1. To elect five directors to serve until the next Annual Meeting of
Shareholders;

2. To amend the Articles of Incorporation of the Company to increase
the number of authorized shares of the Company's common stock, $.01
par value, from 5,000,000 shares to 15,000,000 shares;

3. To approve the Incentive Compensation Plan of American Rice, Inc. (a
subsidiary of the Company);

4. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on Thursday, August
3, 1995 as the record date for the determination of shareholders entitled to
receive notice of, and to vote at, the annual meeting or any adjournment
thereof.

WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, MANAGEMENT URGES YOU TO
COMPLETE, SIGN AND RETURN YOUR PROXY AS SOON AS POSSIBLE. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO ITS USE. A SELF-ADDRESSED POSTAGE PREPAID ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE IN RETURNING THE SIGNED PROXY.

By Order of the Board of Directors,

Thomas A. Whitlock
Vice President and
Assistant Secretary

Los Angeles, California
August 3, 1995

IMPORTANT

BY SIGNING AND RETURNING THE ENCLOSED PROXY PROMPTLY, YOU WILL SAVE YOUR
COMPANY FOLLOW-UP EXPENSE IN CONNECTION WITH THIS PROXY SOLICITATION.

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<PAGE> 2

ERLY INDUSTRIES INC.
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024

PROXY STATEMENT

_________________

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
September 6, 1995

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of ERLY Industries Inc. ("ERLY" or the
"Company") for use at the Company's Annual Meeting of Shareholders to be held on
September 6, 1995, and at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting. It is anticipated that
this Proxy Statement will be mailed to shareholders on or about August 9, 1995.
All expenses incident to the preparation and mailing of, or otherwise making
available to all Shareholders, the Notice, Proxy Statement and Form of Proxy,
are to be paid by the Company. In addition to the use of the mails, proxies may
be solicited personally, or by telephone or telegraph, by employees of the
Company.

Shares represented by proxies in the accompanying form which are returned
properly executed will be voted in accordance with the proxy, unless previously
revoked. A proxy given pursuant to the solicitation may be revoked at the
option of the person executing it at any time prior to the exercise of the
powers conferred, by the filing with the Secretary or Assistant Secretary of the
Company of an instrument revoking such proxy or of a duly executed proxy bearing
a later date, or by attending the Annual Meeting and voting in person.

<PAGE>
<PAGE> 3
VOTING SECURITIES

Only Shareholders of record of the Company's Common Stock at the close of
business on August 3, 1995 will be entitled to vote at the Meeting, or at any
adjournment thereof. On that date, the Company had outstanding 3,718,272 shares
of Common Stock. Each share is entitled to one vote, subject, however, to the
right of each Shareholder to cumulate his votes in the election of directors.
(For an explanation of cumulative voting, see "Election of Directors" herein).

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth information regarding the ownership of the
Company's Common Stock as of June 30, 1995 of (i) each person known to the
Company to be the beneficial owner of more than five percent of the outstanding
shares of Common Stock; (ii) each director and nominee for director of the
Company; (iii) each executive officer named in the Compensation Table; and
(iv) all directors and executive officers of the Company and its subsidiaries as
a group. Except as indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned by each
stockholder.

Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership class *
-------------------------- -------------------- ----------
<S> <C> <C>
Gerald D. Murphy, Chairman 1,517,191 shares 37.4%
ERLY Industries Inc. Direct (1) and
10990 Wilshire Blvd. Indirect (2)(7)
Los Angeles, CA 90024

Internationale Nederlanden 725,294 shares 15.0%
(U.S.) Capital Corporation Direct (3)
135 E. 57th Street
New York, NY 10222-2101

Douglas A. Murphy, President 506,502 shares 12.5%
and Director Direct (4)
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024

State Treasurer of the 372,368 shares 10.0%
State of Michigan Direct (5)
301 W. Allegan Street
Lansing, MI 48922

William H. Burgess, Director 283,000 shares 7.6%
550 Palisades Drive Direct
Palm Springs, CA 92262

Gentleness 220,000 shares 5.9%
P.O. Box N7776 Direct (6)
Lyford Cay
Nassau, Bahamas
</TABLE>

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<PAGE> 4

<TABLE>
<CAPTION>
<S> <C> <C>
Bill J. McFarland, Director 34,791 shares .9%
ERLY Industries Inc. Direct
10990 Wilshire Blvd.
Los Angeles, CA 90024

Richard N. McCombs 38,651 shares 1.0%
Vice President and Direct
Chief Financial Officer
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024

Alan M. Wiener, Director -- --
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024

All directors and executive
officers as a group
(11 persons) 1,933,535 shares (8) 47.7%

</TABLE>

* The percentages of shares held assume that options or convertible
notes held by the particular individual, if any, have been exercised
or converted, and no others.

(1) Mr. Gerald D. Murphy, Chairman of the Board of the Company, is the
record holder of 1,006,696 shares.

(2) Mr. Gerald D. Murphy's indirect beneficial ownership represents
510,495 shares owned (1) directly by his son Douglas A. Murphy,
President of the Company, and (2) held in trust for his grandson.
Of this total, Gerald D. Murphy has voting control of the 3,993
shares held in trust for his grandson, however, he denies holding
voting or investment control of the balance of the 506,502 shares
owned directly by his son, Douglas A. Murphy.

(3) International Nederlanden (U.S.) Capital Corporation ("ING Capital")
filed a Schedule 13D in March 1995 concerning possible beneficial
ownership of 483,529 shares, as adjusted, (on a fully diluted basis)
of ERLY Industries Inc. common stock. The potential ownership
consists of stock that may be purchased pursuant to two warrant
issues: (i) An "A" Warrant, exercisable into 241,765 shares at $.01
per share any time after April 1, 1996, and (ii) a "B" Warrant,
exercisable into 241,765 shares at $.01 per share after April 1,
1995. These warrants were issued as an inducement and condition to
certain loans and financial accommodations made by ING Capital for
the benefit of ERLY as well as for general investment purposes. The
warrants may be redeemed by the Company prior to April 1, 1996 upon
receipt of certain payments by ING Capital as described below.

<PAGE>
<PAGE> 5
ING Capital was also issued additional warrants to purchase 5% of
ERLY's common stock at $.01 per share, in conjunction with the
extension of debt relating to the Company's subsidiary, ERLY Juice
Inc. ("ERLY Juice") in February 1995. These warrants become
exercisable on April 1, 1996, expire in 2004 and will be canceled if
the ERLY Juice debt plus accrued interest is repaid by April 1,
1996. At the same time, the "A" and "B" warrants previously issued
were amended to include a call feature, under which the Company
could repurchase the warrants at a price of $8.75 per share,
assuming the ERLY Juice debt is repaid before April 1, 1996, the
expiration date of the call feature. The call feature also
eliminates the redemption provision, until the call period expires.

In June 1995, the February extension was amended to reduce the $8.75
call price per share to $5.50 per share if the ERLY Juice debt is
repaid before September 30, 1995. In such event, the call feature
will be extended through September 30, 1996. If the ERLY Juice debt
is not repaid in accordance with the agreements discussed above, or
the call option is not exercised, the Company would have outstanding
warrants to purchase approximately 725,000 shares of common stock at
$.01 per share, all of which would be subject to redemption at the
current market price of ERLY's stock.

(4) Mr. Douglas A. Murphy, President of the Company, is the record
holder of 173,356 shares and has the right to acquire an additional
66,550 shares pursuant to options granted under the 1982 Incentive
Stock Option Plan described under "Executive Compensation." In
addition, Mr. D.A. Murphy has the right to acquire an additional
266,596 shares pursuant to the conversion features of a $1,000,000
note receivable from the Company described under "Transactions With
Management" in this Proxy Statement.

(5) Includes 300,000 shares of redeemable common stock issued in 1992.
The shares are subject to an agreement to repurchase all of such
stock at a price of $6.00 per share, at the option of the holder,
over a four-year period beginning January 1, 1994.

(6) Based upon Schedule 13D filed as of October 30, 1992 with the
Securities and Exchange Commission. Gentleness is an Isle of Man
Corporation indirectly controlled by John M. Templeton. Mr.
Templeton may be deemed to be the beneficial owner of the shares of
ERLY owned by Gentleness by virtue of his ability to direct the
voting or disposition of such shares.

(7) Kingwood Lakes South, L.P., a partnership created to build a
residential development near Houston, Texas filed a Schedule 13D on
April 7, 1995 concerning possible beneficial ownership of 333,333
shares of ERLY Industries Inc. common stock. The partnership holds
the stock as a security interest against a promissory note in the
principal amount of $1,500,000 issued by Mr. Gerald D. Murphy as a
capital contribution to the partnership.

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<PAGE> 6

(8) The number of shares shown as beneficially owned by all directors
and officers as a group includes stock options held by officers to
purchase 115,131 shares under the Company's Incentive Stock Option
Plan and 266,596 shares issuable pursuant to a note payable by the
Company described under "Transactions With Management."

Mr. Gerald D. Murphy has pledged 730,633 shares of his ERLY Industries
stock as collateral for personal loans totaling $2,307,500 from three
financial institutions and a partnership.

Mr. Douglas A. Murphy has pledged 150,175 shares of ERLY Industries
stock as collateral for a personal loan totaling $273,000 from a financial
institution.

In conjunction with a transaction completed in May 1993, ERLY combined
its investment in its wholly owned subsidiary, Comet Rice, Inc. into American
Rice, Inc. ("ARI"). As a result of the transaction, ERLY increased its
ownership in the combined voting rights of ARI stock outstanding from 48% to
81%. ERLY's ownership in ARI consists of 777,777 shares of ARI Common Stock,
777,777 shares of Series A Preferred Stock (each share of which is convertible
into one share of ARI Common Stock), and 2,800,000 shares of Series B
Preferred Stock (each share of which is convertible into two shares of ARI
Common Stock).

If ERLY were to convert all of the shares of Series A Preferred Stock
and Series B Preferred Stock owned by it, ERLY would hold 7,155,554 shares, or
approximately 81% of the outstanding shares, of ARI common stock.

Because of their positions as directors and significant shareholders of
ERLY Industries, Messrs. G.D. Murphy, D.A. Murphy and W.H. Burgess could be
deemed to be the beneficial owners of the ARI stock owned by ERLY Industries.

PROPOSAL 1 - ELECTION OF DIRECTORS

Five directors shall be elected at the meeting to serve until the next
annual meeting and until their successors shall be elected and qualified. In
voting for directors, each shareholder has the right, as provided by the Bylaws
and by California law, to cumulate his votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
votes to which his shares are entitled, or to distribute that total number of
votes among as many candidates as he desires. The five candidates receiving the
highest number of votes will be elected.

In the election of directors, the votes represented by proxies received
pursuant to this solicitation will be distributed among the five nominees listed
below to the end that, within the limitations of cumulative voting, the maximum
number of said nominees will be elected. Should any of the said nominees become
unavailable, discretionary authority is reserved to vote or refrain from voting
for other nominees or to distribute the votes among all remaining nominees.

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<PAGE> 7

NOMINEES FOR BOARD OF DIRECTORS

The names of the nominees and certain information about each of them as of
the Record Date are set forth below:

Date elected Number of shares Percent
as director of common stock of
Name of nominee Age of company beneficially owned class
----------------- --- ------------ ------------------ -------

Gerald D. Murphy 67 April 1964 1,517,191 37.4%

Mr. Murphy has served as Chairman of the Board and Chief Executive Officer of
ERLY Industries Inc. since formation of the Company in 1964. He has served as
Chairman of the Board of American Rice, Inc. (which is 81% owned by ERLY
effective May 1993) since 1993 and as a Director of ARI since 1988. He also
serves as a Director of Pinkerton's, Inc., a security and investigation services
firm, and High Resolution Sciences, Inc., a technological corporation.

Douglas A. Murphy 39 January 1988 506,502 12.5%

Mr. Murphy has served as President of the Company since 1990 and as Chief
Operating Officer since 1992. He has also served as President and Chief
Executive Officer of American Rice, Inc. since 1993 and as a Director of ARI
since 1990. He has served as President of ERLY Juice Inc. since 1988, a
subsidiary of the Company, and was President of Comet American Marketing, a
division of American Rice, Inc., from 1986 to 1990. He is also a director
advisor of Compass Bank Houston.

William H. Burgess 78 September 1975 283,000 7.6%

Mr. Burgess is a private business consultant, Chairman of CMS Digital, Inc., a
privately held company, and a Director of American Rice, Inc. From 1978 to 1986
Mr. Burgess was Chairman of International Controls Corp., an internationally
diversified manufacturing company listed on the New York Stock Exchange.

Bill J. McFarland 58 August 1986 34,791 .9%

Mr. McFarland has served as Vice President of the Company since 1975 and as
Director since 1986. He has served as President of Comet American Marketing and
Senior Vice President of American Rice, Inc. since 1993. He was President of
ERLY Food Group from 1990 to 1993, President of The Beverage Source from 1979 to
1990 and President of Early California Foods from 1975 until its sale in 1985
(all subsidiaries of the Company).

Alan M. Wiener 57 March 1995 -- --%

Mr. Wiener was appointed as Director of the Company in 1995. He has served as
President of Impulse Designs, Inc. since 1974. Prior to that time he held
positions with Riviana Foods Inc. and Borden, Inc. He previously served as
director of Cal Fame Citrus Products, Inc. and Leisure Technology, Inc.

Mr. Douglas A. Murphy is the son of Gerald D. Murphy, Chairman of the Board
of the Company. There are no other family relationships among the directors of
the Company.

Each of the nominees has sole voting and investment power with respect to
shares owned directly by them. Included in common stock beneficially owned by
Mr. Douglas A. Murphy and Mr. Bill J. McFarland are options issued in 1988 to
purchase 66,550 shares and 26,620 shares, respectively, at $4.51 per share under
the Company's Incentive Stock Option Plan. These options expire in 1998.

<PAGE>
<PAGE> 8

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has four committees with specific responsibilities
to support the operations of the full Board. These are the Executive Committee,
the Audit Committee, the Compensation and Stock Option Plan Committee and the
Profit Sharing Plan Committee. The Board of Directors does not have a
Nominating Committee, as the entire Board acts in this capacity.

The Board of Directors has delegated to the Executive Committee the powers
and authority of the Board in the management of the business, except that the
Executive Committee is not to: take any actions which could await actions by
the Board; approve capital expenditures exceeding $100,000; or, authorize
transactions which would be both material and outside the ordinary and normal
course of the business of the corporation. Mr. Gerald D. Murphy serves as
Chairman of this Committee, and Messrs. Douglas A. Murphy and Burgess are
committee members.

The Audit Committee meets with the Company's independent certified public
accountants and reviews the scope and results of the annual audit. Mr. Burgess
is Chairman and Mr. McFarland and Mr. Wiener are members of the Audit Committee.

The Compensation and Stock Option Plan Committee recommends to the Board
of Directors proposed compensation programs for all principal officers of the
corporation. Mr. Burgess is Chairman and Mr. G.D. Murphy and Mr. Wiener are
committee members.

The Profit Sharing Plan Committee recommends to the Board of Directors
proposed contributions by the Company to the ERLY Industries Inc. Employees
Profit Sharing Retirement Plan. Mr. Douglas A. Murphy is Chairman and Mr.
McFarland is a committee member.

During the fiscal year ended March 31, 1995, the full Board held three
meetings; the Executive Committee took no action; the Audit Committee met twice;
the Compensation and Stock Option Plan Committee met once and, the Profit
Sharing Plan Committee met one time. Each director was in attendance at 75% or
more of all of the meetings of the full Board of Directors and all committees on
which each director served.

<PAGE>
<PAGE> 9

COMPENSATION OF DIRECTORS

Members of the Board of Directors who are not officers of the Company are
compensated on the basis of $2,000 per quarter plus a fee of $1,500 for each
meeting attended in person or by telephone. In addition, in fiscal 1995, Mr.
Burgess received fees of $18,000 for public relations services provided to the
Company.

EXECUTIVE COMPENSATION

The following table sets forth information for each of the three fiscal
years ended March 31, 1995 for the Chief Executive Officer of the Company and
the four other most highly compensated executive officers of the Company and its
subsidiaries:

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

Annual Compensation Long-term Compensation
---------------------------------- ------------------------------------

Awards Payouts
----------------------- ----------
Fiscal Other Securities
Year Annual Restricted Underlying All Other
Name and ended Compen- Stock Options/ LTIP Compen-
Principal Position March 31 Salary Bonus($) sation($) Awards($) SARs(#) Payouts($) sation($)
------------------ -------- -------- --------- --------- ---------- ----------- ---------- ----------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald D. Murphy 1995 $310,000 $120,160 $ 7,233 $ 43,774 - - $ 9,060(3)
Chairman of the Board and 1994 290,000 50,000 588 75,000 - - 293,507(4)
Chief Executive Officer of 1993 280,000 - 3,284 - - - 6,650(3)
ERLY Industries Inc.
Chairman of the Board of
American Rice, Inc.

Douglas A. Murphy 1995 230,000 93,280 5,791 36,858 - - 8,914(3)
President and Chief 1994 210,000 50,000 4,975 75,000 - - 112,720(5)
Operating Officer of 1993 195,000 - 6,695 - - - 5,143(3)
ERLY Industries Inc.
President and Chief
Executive Officer of
American Rice, Inc.

Bill J. McFarland 1995 198,000 55,400 4,075 14,263 - - 7,500(3)
Vice President of ERLY 1994 190,000 5,000 1,815 5,000 - - 10,303(3)
Industries Inc. 1993 185,000 - 2,670 - - - 3,700(3)
Senior Vice President of
American Rice, Inc.

Thurston F. Teele 1995 183,600 364,000 1,640 - - - 7,500(3)
President of Chemonics 1994 180,000 67,900 1,940 - - - 7,340(3)
International, Inc. 1993 165,000 87,894 748 - - - 6,068(3)

Richard N. McCombs 1995 170,000 28,560 2,418 7,347 - - 8,106(3)
Vice President and Chief 1994 155,000 74,000 1,954 88,250 - - 11,135(3)
Financial Officer of 1993 140,000 10,000 1,933 - - - 4,399(3)
ERLY Industries Inc.
Executive Vice President
of Finance and
Administration of
American Rice, Inc.

</TABLE>

(1) Amounts included in this column reflect: (i) the cost of Company provided
automobiles relating to personal use, (ii) the taxable value of life
insurance provided by the Company, and (iii) reimbursements under the
Company's Executive Medical Plan (the "Plan"). Under the Plan, key
executive officers of the Company are entitled to be reimbursed for
expenses incurred for medical and dental care provided to the key
executive officer and his dependents which are not otherwise covered by
other sources.

<PAGE>
<PAGE> 10

(2) The number of shares of restricted stock and the market value thereof held
by the executive officers listed in the table at March 31, 1995, was as
follows: G.D. Murphy, 20,990 shares ($236,137); D.A. Murphy, 20,379
shares ($229,264); B.J. McFarland, 2,402 shares ($27,022); Thurston F.
Teele, none; and, R.N. McCombs, 24,065 shares ($270,731). Such shares are
restricted for a two-year period from the date of issuance. Although no
cash dividends have ever been paid on ERLY common stock, dividends if any,
would be paid on restricted stock at the times and in the amounts as
dividends paid to all shareholders.

(3) Amounts represent Company contributions to the ERLY Industries Inc.
Employees Profit Sharing Retirement Plan.

(4) Amount includes: (1) Company contribution to the ERLY Industries Inc.
Employees Profit Sharing Retirement Plan ($13,507); (2) a $180,000 fee for
a personal guaranty by G.D. Murphy of an $8 million bank line of credit
advance to Comet Rice; and (3) a $100,000 fee ($35,000 cash plus $65,000
of ERLY stock) for a personal guaranty by G.D. Murphy of up to $5 million
of bank debt under a letter agreement between ING Bank, ERLY Industries
Inc. and ERLY Juice Inc.

(5) Amount includes: (1) Company contribution to the ERLY Industries Inc.
Employees Profit Sharing Plan ($12,720); and (2) a $100,000 fee ($35,000
cash plus $65,000 ERLY stock) for a personal guaranty by D.A. Murphy of up
to $5 million of bank debt under a letter agreement between ING Bank, ERLY
Industries Inc. and ERLY Juice Inc.

In 1982, the Board of Directors adopted an Incentive Stock Option Plan,
which was subsequently approved by the shareholders. Under the Plan, 250,000
shares of ERLY common stock were reserved for the granting of options to key
employees. The Plan had a term of 10 years and expired in 1992. The expiration
of the Plan has no effect on outstanding options. The purchase price for shares
could not be less than the market value of the shares at the date of grant. The
options were exercisable 25% a year over a four-year period beginning one year
after the date of issuance. Options generally expire ten years from the date of
grant.

As of June 30, 1995, options for 115,131 shares remain outstanding. The
market value of the Company's common stock at March 31, 1995 was $11.25 per
share, compared to the option price (as adjusted for stock dividends) of $4.51
per share.

<PAGE>
<PAGE> 11

The following table presents information on stock options held by the
executive officers named in the Compensation Table at the end of fiscal 1995.
During fiscal 1995, Mr. McFarland exercised options granted in 1985 for the
purchase of 8,053 shares of ERLY common stock at a price of $3.73 per share. No
other officers exercised any stock options during the last three years.

AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1995
AND MARCH 31, 1995 OPTION/SAR VALUES

<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares March 31, 1995 (#) March 31, 1995 ($)(2)
Acquired on Value -------------------------- --------------------------
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>

Gerald D. Murphy - - - - - -

Douglas A. Murphy - - 66,550 - $448,547 -

Bill J. McFarland 8,053 $60,559 26,620 - 179,419 -

Thurston F. Teele - - - - - -

Richard N. McCombs - - - - - -

</TABLE>

(1) Market value of underlying securities at the exercise date ($11.25 per
share), less the exercise price ($3.73).

(2) Market value of underlying securities at March 31, 1995 ($11.25 per share),
less the exercise price ($4.51)

Incentive Compensation Plan - American Rice, Inc.

The Company owns 81% of the outstanding voting capital stock of American Rice,
Inc. In fiscal 1995, ARI's Board of Directors adopted, subject to shareholder
approval, an Incentive Compensation Plan (the "Incentive Plan"), pursuant to
which certain key officers of ARI are entitled to receive bonuses, in addition
to other compensation they may receive from ARI, of 80% cash and 20% ERLY or
ARI common stock if the minimum Return on Equity (as defined in the Incentive
Plan) of ARI is achieved. Bonuses under the Incentive Plan are 70% earned in
the year the Return on Equity is 15% or greater and the remaining 30% will be
earned in the following year if ARI achieves a Return on Equity of 15% or
greater in such subsequent fiscal year. Unvested bonuses awarded that would
otherwise be available under the Incentive Plan in the subsequent fiscal year
will be forfeited upon a participant's voluntary termination of employment.
Furthermore, no shares of stock issued under the Incentive Plan can be
transferred for two years following issuance. The Incentive Plan is not
subject to any provisions of ERISA.

ERLY's Board of Directors has also approved the Incentive Plan, subject to
shareholder approval, and has reserved 250,000 shares of ERLY's $.01 par value
common stock for issuance pursuant to the terms of the Incentive Plan. See
"Proposal 3 - Approval of the American Rice, Inc. Incentive Compensation Plan."

<PAGE>
<PAGE> 12

COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION

Decisions on the compensation of the Company's executive officers are made
by the Compensation Committee of the Board of Directors which consists of Mr.
William H. Burgess, Chairman, Mr. Gerald D. Murphy and Mr. Alan M. Wiener. Mr.
Burgess is a private business consultant, Chairman of CMS Digital, Inc. and a
Director of American Rice, Inc. He is the beneficial owner of 7.6% of the
Company's common stock. Mr. Murphy is Chairman and Chief Executive Officer of
the Company and is the beneficial owner of 37.4% of the Company's common stock.
He is also Chairman of the Board of American Rice, Inc.

All decisions by the Compensation Committee were reviewed and approved
without change, by the full Board of Directors of the Company. Mr. Burgess was
responsible for the determination of Mr. G.D. Murphy's compensation as Chief
Executive Officer and Mr. Murphy did not participate in any Compensation
Committee or Board of Directors discussions or decisions concerning his own
compensation. Except for Mr. Murphy, who is the Chief Executive Officer of the
Company, no other member of the Compensation Committee is now or ever has been
an officer or employee of the Company or its subsidiaries.

Mr. Burgess and Mr. Murphy are also Directors of American Rice, Inc. Both
serve on ARI's Compensation Committee of the Board of Directors, with Mr. Murphy
as Chairman of the Committee.

Messrs. G.D. Murphy, D.A. Murphy and W.H. Burgess also serve as Directors
of American Rice, Inc. Mr. B.J. McFarland, a Director and Vice President of
ERLY, is a Senior Vice President of American Rice, Inc. In addition, Mr. R.N.
McCombs, Vice President and Chief Financial Officer of ERLY Industries, is a
Director and Executive Vice President of American Rice.

In March 1987, Mr. Gerald D. Murphy, Chairman of the Board of ERLY
Industries Inc., loaned the Company $1.2 million (the "Murphy Note") to help
finance a loan by ERLY Industries to Hansen Foods, Inc. The Murphy Note
provided for interest at the prime rate plus 4.5%.

On January 1, 1990, the Murphy Note (with a balance of $1,296,000,
including accrued interest) was canceled in exchange for two convertible
promissory notes with face amounts of $1,000,000 and $296,000. These notes bore
interest at the prime rate plus 2% and were due in full on January 1, 1993.
These notes were convertible at any time into ERLY Industries common shares at
a conversion price of $5.57 per share, the market price on January 1, 1990 (as
adjusted for a 10% stock dividend in September 1990).

In April 1992, Mr. Gerald D. Murphy sold the $1.0 million note to his son,
Douglas A. Murphy, President of the Company. The $296,000 note retained by Mr.
G.D. Murphy was repaid through principal payments of $1,000 (1994), $215,000
(1993), $30,000 (1992) and $50,000 (1991). Mr. Douglas Murphy renewed the $1.0
million note on April 1, 1995. The new note bears interest at the prime rate
plus 2%, is due in full on April 1, 1996, and may be converted at any time into
ERLY Industries common shares at a conversion price of $3.75 per share, the
average market price of ERLY stock for the seven trading days immediately prior
to the April 1, 1993 renewal of the note.

<PAGE>
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee's objectives are to establish compensation
programs designed to attract and retain executives who are responsible for
achieving the business goals of the Company. The Committee reviews and sets the
compensation levels of members of management. It is also responsible for the
administration of the Company's various compensation plans including annual
salaries and bonuses, the stock option plan, the ERLY Industries Inc. Employees
Profit Sharing and Retirement Plan and other benefits provided to executives.

Base Salary Levels

Base salary levels for ERLY's executive officers increased by approximately
5.9% from fiscal year 1994 to 1995. Historically, the compensation of the
executive officers of the Company, including the Chief Executive Officer, has
not been formally set by the Committee using specific performance goals or
formulas tied to financial benchmarks. Rather, base salary levels for the
executives of the Company and its subsidiaries are set annually based on a
variety of subjective factors such as: personal performance, current
responsibilities, specific accomplishments or events, increase in the consumer
price index, future potential contributions to the Company, informal surveys of
compensation paid to executive officers holding similar positions in other
publicly traded companies of comparable size, and the fiscal year 1994
performance of the Company and the subsidiary or division to which the
executive is assigned. When considering executive compensation for fiscal 1995,
the Committee considered various contributions in fiscal 1994, including:
(1) the improvement in ERLY's financial results (net income in 1994 was $17.7
million compared to a net loss of $8.7 million in 1993; stockholders' equity
increased by $17.6 million to $8.4 million at March 31, 1994; working capital
was $2.9 million at March 31, 1994 compared to negative $44.5 million at
March 31, 1993; and, sales increased 53% from $219 million in 1993 to $335
million in 1994), (2) the completion of the transaction with American Rice in
May 1993, (3) the refinancing of the debt of American Rice and Comet Rice,
(4) the disposition of the Company's juice business in fiscal 1994, and (5) the
successful exchange of the Company's 12-1/2% Subordinated Debentures due 1993
for new 12-1/2% Subordinated Debentures due 2002.

All of the subjective factors were considered by the Committee, and it is
not reasonably possible to assign relative significance to these factors on an
individual basis.

Bonuses

In fiscal 1995, ARI's Board of Directors adopted (Proposal No. 3 herein)
an Incentive Compensation Plan (the "Incentive Plan"), pursuant to which certain
key officers of ARI are entitled to receive bonuses that are payable 80% in cash
and 20% in common stock if certain specified Returns on Equity (as defined
therein) of ARI are achieved. Bonuses under the Incentive Plan are 70% earned
in the year the Return on Equity is 15% or greater and the remaining 30% is
earned in the following fiscal year if ARI achieves a Return on Equity of 15% or
greater in such subsequent fiscal year. Any portion of the bonus that would
otherwise be available under the Incentive Plan in the subsequent fiscal year
will be forfeited upon a participant's voluntary termination of employment.
Furthermore, no shares of stock issued under the Incentive Plan can be
transferred for two years following issuance. The Incentive Plan is not subject
to any provisions of ERISA. See "Proposal 3 - Approval of the American Rice,
Inc. Incentive Compensation Plan."

<PAGE>
<PAGE> 14

The Company's subsidiary, Chemonics International, Inc., has a bonus plan
covering certain executives, including the President of the subsidiary, T.F.
Teele, who is listed in the Summary Compensation Table under "Executive
Compensation." Bonuses are paid according to computations which consider:
(a) Results for the year based on a minimum return on equity (15%), and
(b) results for the year in excess of budgeted targets.

Under ERLY's executive compensation program covering corporate and
divisional executives other than ARI personnel and Chemonics International
personnel (who are covered by bonus plans described above), bonuses of stock
and/or cash may be awarded in recognition of achievement during a year.
Individual performance is assessed considering both qualitative and quantitative
performance; however, the individual performance reviews relating to bonuses
have been conducted on a subjective, non-formula basis. Cash and stock bonuses
were awarded to executive officers in 1995 to acknowledge various contributions
in fiscal 1995, including: (1) the improvement in ERLY's operating results
(excluding non-recurring, non-cash items in 1994); stockholders' equity
increased by $8.4 million for the year to $16.8 million at March 31, 1995;
working capital was $15.9 million at March 31, 1995 compared to $2.9 million
last year; and, sales increased 37% from $335 million in 1994 to $460 million
in 1995.

Other

The Company provides insured medical benefits to executive officers that
are generally available to all full-time employees of the Company. Executive
officers also are eligible to participate in the ERLY Industries Inc. Employees
Profit Sharing and Retirement Plan on the same basis as all other eligible
employees of the Company. The Company provides additional benefits to
executive officers through executive medical coverage and company provided
automobiles.

Amounts paid in fiscal 1995 under the above described plans and programs
for the Chief Executive Officer and the four most highly compensated executive
officers of the Company and its subsidiaries are included in the Summary
Compensation Table and related footnotes presented in the "Executive
Compensation" section.

Compensation of Chief Executive Officer in 1995

In considering the amount of compensation for fiscal year 1995 for Mr.
Gerald D. Murphy, Chief Executive Officer, the Committee (excluding Mr. G.D.
Murphy) and the Board considered the improved financial results reported by the
Company in 1995 as described above, and contributions made by Mr. Murphy to
enhance the long-term growth of the Company which included: the significant
export sales of rice to the Far East in 1994 and 1995; the establishment of a
joint venture for rice operations in Vietnam; and, the coordination of other
potential export opportunities.

As with the Company's other executives, Mr. G.D. Murphy's 1995 salary was
based on the various subjective factors detailed under the caption "Base Salary
Levels" above. Mr. Murphy's base salary increased from $290,000 in 1994 to
$310,000 in 1995, a 6.9% increase. Mr. Murphy also received a bonus of
$163,934 in 1995 (consisting of $120,160 cash and $43,774 in ERLY stock). Of
this amount, $130,954 was paid pursuant to the terms of the ARI Incentive
Compensation Plan. The balance ($32,980) was paid in recognition of the
favorable financial results recorded by the Company's other operating entities,
Chemonics International and Fire-Trol, in fiscal year 1995.

<PAGE>
<PAGE> 15

In 1993, the U.S. Treasury Department issued regulations (Section 162(m)
to the Internal Revenue Code) that prevent publicly traded companies from
receiving tax deductions on compensation paid to its executive officers in
excess of $1 million. The Company has not paid, and does not currently
anticipate paying compensation at these levels, and therefore, does not believe
that these provisions will be relevant to the Company's executive compensation
levels for the foreseeable future.

COMPENSATION COMMITTEE
ERLY INDUSTRIES INC.

William H. Burgess, Chairman
Gerald D. Murphy
Alan M. Wiener

STOCK PRICE PERFORMANCE

The graph below compares the cumulative total return on the Company's
Common Stock with the cumulative total return of (i) the Total Return Index for
the Nasdaq Stock Market (U.S. Companies) and (ii) the Total Return Index for
Standard and Poor's Food Products Companies. The comparison covers the five-
year period from April 1, 1990 to March 31, 1995, the end of ERLY's 1995 fiscal
year and assumes that $100 was invested at the beginning of the period in ERLY
Common Stock and in each index.

The stock price performance shown on the graph is not necessarily
indicative of future price performance.

Total Return S & P
for the Food
ERLY NASDAQ Stock Products
Industries Market - Companies
Measurement Period Inc. U.S. Companies Index
------------------ ---------- -------------- ---------

<S> <C> <C> <C>
At April 1, 1990 $100 $100 $100

FYE March 31, 1991 98 114 137
FYE March 31, 1992 46 146 149
FYE March 31, 1993 43 167 163
FYE March 31, 1994 59 180 150
FYE March 31, 1995 152 201 179

</TABLE>

<PAGE>
<PAGE> 16

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

Executive officers and directors of the Company are required to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission pursuant to Section 16(a) of the Securities
Exchange Act of 1934. The Company has reviewed such reports received by it and
believes that, except as specified below, all of its executive officers and
directors complied with all applicable Section 16(a) filing requirements during
the fiscal year ended March 31, 1995.

The Form 3 that initially reported Mr. Alan M. Wiener's appointment as a
director of the Company, reflecting no beneficial ownership of ERLY common
stock, was not filed until May 1995. The Form 3 to initially report Mr.
Thurston F. Teele, President of the Company's subsidiary Chemonics
International, Inc., as a reporting person, was not filed until May 1995. No
beneficial ownership of ERLY common stock was reported by Mr. Teele.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT

CERTAIN BUSINESS RELATIONSHIPS

In conjunction with a transaction completed in May 1993, ERLY combined its
investment in its wholly owned subsidiary, Comet Rice, Inc. into American Rice,
Inc. As a result of the transaction, ERLY increased its ownership in the
combined voting rights of ARI stock outstanding from 48% to 81%. ERLY's
ownership in ARI consists of 777,777 shares of ARI Common Stock (each share of
which is entitled to one vote), 777,777 shares of Series A Preferred Stock (each
share of which is entitled to one vote and is convertible into one share of ARI
Common Stock), and 2,800,000 shares of Series B Preferred Stock (each share of
which is entitled to two votes and is convertible into two shares of ARI Common
Stock). Because of their positions as directors and significant shareholders of
ERLY Industries, Messrs. G.D. Murphy, D.A. Murphy, and W.H. Burgess could be
deemed to be the beneficial owners of the ARI stock owned by ERLY Industries.

<PAGE>
<PAGE> 17

Messrs. G.D. Murphy, D.A. Murphy and W.H. Burgess also serve as Directors
of American Rice, Inc. Mr. B.J. McFarland, a Director and Vice President of
ERLY, is a Senior Vice President of American Rice, Inc. In addition,
R.N. McCombs, Vice President and Chief Financial Officer of ERLY Industries, is
a Director and Executive Vice President of American Rice.

PROPOSAL 2 - AMENDMENT OF THE ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Company's presently authorized capital stock consists of 5,006,000
shares, of which 5,000,000 shares are common stock, par value $.01 per share,
and 6,000 shares are preferred stock, par value $100.00 per share. The Board of
Directors has adopted a resolution declaring it advisable that the number of
authorized shares of the Company's common stock be increased to 15,000,000
shares, and directing that the proposed amendment to the Company's Articles of
Incorporation be considered by the stockholders at the Annual Meeting. As of
June 30, 1995, 3,718,272 shares of common stock were issued and outstanding.
There are no issued or outstanding shares of preferred stock.

The proposed increase in number of authorized common shares would be
accomplished by amending the second paragraph of the Fourth Article of the
Articles of Incorporation of the Company to read as follows:

"The total number of shares of common stock which the Corporation is
authorized to issue is 15,000,000 shares; the aggregate par value of
all said shares of common stock is $150,000; and the par value of
each such share is $.01."

Purposes and Effects of the Proposed Amendment

The proposal to increase the number of authorized common shares is intended
to allow the Company to cover any exercise of outstanding common stock warrants
and stock options, and any which may be granted in the future, and to increase
the Company's flexibility to conduct future operations, including the issuance,
distribution, exchange or reservation of shares of common stock for stock
dividends, acquisitions, financings, executive equity compensation plans and
employee profit sharing plans by increasing the number of shares of common stock
that can be issued without further shareholders approval. Although there are no
current plans to issue any additional shares of common stock (unless existing
warrants or stock options are exercised and other than shares that may be issued
under The ERLY Industries Inc. Employees Profit Sharing Retirement Plan or under
ARI's Incentive Compensation Plan discussed in Proposal 3), the Board of
Directors believes that the adoption of these proposals will enable the Company
to promptly and appropriately respond to business opportunities, such as
opportunities to raise additional equity capital or to finance acquisitions with
common stock and to take corporate action on, for example, stock splits and
stock dividends and employee benefit plans. Given the number of shares
currently available for issuance, the Company may not be able to effect certain
of these transactions without obtaining shareholder approval for an increase in
the number of shares it is authorized to issue. The cost, prior notice
requirements and delay involved in obtaining shareholder approval at the time
that corporate action may become desirable could eliminate the opportunity to
effect the action or reduce the expected benefits.

<PAGE>
<PAGE> 18

The additional shares of common stock proposed to be authorized generally
will be available for issuance without any requirement for further shareholder
approval, unless shareholder action is required by applicable law or by the
rules of the National Association of Securities Dealers, Inc. Although the
Board of Directors will authorize the issuance of additional shares only when
it considers doing so to be in the best interest of shareholders, the issuance
of additional common stock may, among other things, have a dilutive effect on
earnings and earnings per share of common stock and on the voting rights of
holders of shares of common stock. The Company's shareholders do not have any
preemptive rights to subscribe for additional common stock or any that may be
issued. (Although the Board of Directors has not, at this time, made a
determination as to whether it will adopt a shareholder rights plan, the Board
of Directors may determine at a future time to use the additional shares for
that purpose). In addition, although the Board of Directors has no current
plans to do so, shares of common stock could be issued in various other
transactions that would make a change in control of the Company more difficult
or costly and, therefore, less likely. For example, shares of common stock
could be sold privately to purchasers who might support the Board of Directors
in a control contest or to dilute the voting or other rights of a person
seeking to obtain control. The Company is not aware of any effort to obtain
control of the Company by a tender offer, proxy contest, or otherwise, and the
Company has no present intention to use the increased shares of authorized
common stock for anti-takeover purposes.

The proposed amendment to the Articles of Incorporation must be approved
by the affirmative vote of the holders of a majority of the outstanding shares
of common stock entitled to vote at the Annual Meeting. The Board of Directors
recommends that the stockholders vote "FOR" approval of the proposed amendment
to the Articles of Incorporation of the Company.

PROPOSAL 3 - APPROVAL OF THE AMERICAN RICE, INC.
INCENTIVE COMPENSATION PLAN

The ARI Incentive Compensation Plan (the "Incentive Plan") was adopted by
the ARI Board of Directors in 1994 as an incentive for the key employees of ARI
to attain a continuity of superior earnings over a sustained period of time and
thus to enhance the long-term value of ARI. Furthermore, this plan is intended
to help ARI attract and retain persons of outstanding ability.

Key management employees of ARI who are department managers, assistant
vice-presidents, vice-presidents, senior or executive vice-presidents or the
chief operating officer may participate in the Incentive Plan on a year to year
basis at the discretion of ARI's chief executive officer. ARI's chief executive
officer and chairman automatically participate in the Incentive Plan at the
levels specified.

ARI employees who participate in the Incentive Plan will receive a
percentage of their base salary as a bonus based on ARI's Return on Equity as
follows:

Return on Equity
---------------------------------------------------
Title or 15.00% 18.00% 21.00% 24.00%
Office (1) to 17.99% to 20.99% to 23.99% to 26.99% 27.00+%
------------------ --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Department Manager/
Assistant Vice
President 5% 10% 20% 30% 40%

Vice President 10% 20% 30% 50% 65%

Senior Vice
President 10% 25% 50% 75% 100%

Executive Vice
President 15% 30% 60% 90% 120%

President 15% 30% 60% 105% 135%

Chairman 15% 30% 60% 105% 135%

</TABLE>

<PAGE>
<PAGE> 19

(1) Plan participants holding more than one of the indicated titles shall not
be entitled to more than one bonus, but rather shall participate at the
highest bonus level indicated.

Bonuses are seventy percent (70%) earned in the year that ARI Return on
Equity is fifteen percent (15%) or greater and the remaining thirty percent
(30%) is earned in the following fiscal year if ARI achieves a Return on Equity
of fifteen percent (15%) or greater in such subsequent fiscal year. All bonuses
are payable eighty percent (80%) in cash and twenty percent (20%) in shares of
$.01 par value common stock of ERLY or $1.00 par value common stock of ARI (the
"Incentive Shares").

Any unearned cash bonus and Incentive Shares issuable under the Incentive
Plan will be forfeited upon voluntary termination of employment by a
participant. Further, no Incentive Shares issued under the Incentive Plan can
be sold, transferred, assigned or conveyed for two years following their
issuance.

The Summary Compensation Table (see - "Executive Compensation") includes
amounts awarded by ARI under the Incentive Plan for the fiscal year ended March
31, 1995 for G.D. Murphy, D.A. Murphy, B.J. McFarland and R.N. McCombs. The
following table sets forth additional information regarding amounts awarded
under the Incentive Plan for fiscal 1995:

Number of Employees
in Group Amount Awarded
-------------------- --------------
Executive Group 8 $490,340

Non-Executive Director Group - -

Non-Executive Officer Employee Group 3 50,554

The Incentive Plan is not subject to any provisions of ERISA.

Approval of the Incentive Plan requires the affirmative vote of a majority
of the outstanding shares of common stock entitled to vote at the Annual
Meeting. The Board of Directors recommends that the shareholders vote "FOR"
approval of the American Rice, Inc. Incentive Compensation Plan.

RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS

Deloitte & Touche LLP has been the Company's independent certified public
accountants since the inception of the Company in 1964 and will continue to
perform in this capacity for the coming year. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting of Shareholders.
They will have the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions.

OTHER MATTERS

The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than that stated in the Notice of
Annual Meeting. However, if any other business shall properly come before the
Meeting, votes may be cast pursuant to the proxies solicited hereby in respect
to such other business in accordance with the best judgment of the person or
persons acting under the proxies.

<PAGE>
<PAGE> 20

1996 SHAREHOLDER PROPOSALS

Any proposal a shareholder of the Company wishes to have presented at the
1996 Annual Meeting of Shareholders must be received by the Company on or before
May 31, 1996.

By Order of the Board of Directors

Thomas A. Whitlock
Vice President and
Assistant Secretary

Los Angeles, California
August 3, 1995

PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED, SELF-ADDRESSED POSTAGE PREPAID ENVELOPE.

<PAGE>
<PAGE> 21

EXHIBIT A

AMERICAN RICE, INC.
INCENTIVE COMPENSATION PLAN

THIS INCENTIVE COMPENSATION PLAN (the "Plan") is adopted as of the 1st day
of April, 1994, by American Rice, Inc., a Texas corporation ("ARI").

1. Purpose of the Plan. The Plan is intended as an incentive for the key
employees of ARI and its subsidiaries (collectively the "Company") to attain a
continuity of superior earnings over a sustained period of time and thus to
enhance the long-term value of the capital stock of the Company to ARI
shareholders. Furthermore, this Plan is intended to help the Company attract and
retain persons of outstanding ability.

2. Effective Date. The Plan shall become effective only after:

(a) it is approved by the Board of Directors;

(b) certain authorized but unissued shares of ERLY Industries Inc., the
Company's parent corporation ("ERLY"), are set aside to fulfill the purposes of
the Plan.

3. Definitions. As used herein, the following terms have the meaning set forth
unless the context clearly indicates to the contrary:

(a) ARI Shares. "ARI Shares" means shares of the Company's $1.00 par value
common stock.

(b) The Company. The "Company" shall mean American Rice, Inc., a corporation
organized under the laws of the State of Texas, its subsidiaries, and any
successors thereto.

(c) The Board of Directors. The "Board of Directors" shall mean the Board of
Directors of the Company as it may be constituted from time to time.

(d) The Committee. The "Committee" shall mean the committee as appointed by
the Board of Directors to administer this Plan. If no Committee is specifically
appointed, the Committee shall be composed of the entire Board of Directors.

(e) The Employees. The "Employees" shall mean the present or future officers
and employees of the Company.

(f) ERLY Shares. ERLY Shares means shares of the $0.01 par value common stock
of ERLY.

(g) Company Equity. "Company Equity" shall mean total stockholders' equity as
reflected on the Company's audited consolidated balance sheet at the end of the
fiscal year immediately preceding each Award Year; provided, however, the
Company Equity, as of the end of such fiscal year shall not include any
increase or decrease in Company Equity related to push down accounting
adjustments to Company Equity required by mergers or acquisitions. Any such
adjustment amount eliminated from Company Equity shall be specifically approved
by the Committee.

<PAGE>
<PAGE> 22

(h) Fair Market Value. "Fair Market Value" shall mean with respect to a Share
(i) if traded on the National Association of Securities Dealers, Inc. (the
"NASD") National Market System ("NMS"), the last price of a Share sold on the
last trading day on any relevant date or, if there is no trading on such date,
the next preceding date on which there were sales of Shares, as published in the
NASDAQ National Market Issues report in the Southwestern Edition of the Wall
Street Journal, (ii) if listed on a national securities exchange (an
"exchange"), the mean between the highest price and the lowest price at which a
Share shall have been sold "regular way" on an exchange on the applicable date
or, if there are no sales on said date, then on the next preceding date on
which there were sales of Shares, (iii) if the Shares are not traded on the NMS
or listed on an exchange, the mean between the bid and asked prices last
reported by the NASD for the over-the-counter market on the applicable date, or,
if no bid and asked prices are reported on said date, then on the next preceding
date on which there were such quotations, or (iv) if the Shares are not traded
on the NMS or listed on an exchange and quotations for the Shares are not
reported by the NASD, the fair market value determined by the Committee.

(i) Incentive Shares. "Incentive Shares" shall mean the Shares to be issued
pursuant to Paragraph 7(d) of this Plan.

(j) The Plan. The "Plan" shall mean the American Rice, Inc. 1994 Incentive
Compensation Plan as presently adopted and as may be amended from time to time.

(k) Return on Equity. For any Award Year, the term "Return on Equity" for the
Company shall mean the earnings from continuing operations before income taxes
and extraordinary items for the Company divided by the relevant Company Equity;
provided, however, said earnings shall not include any increase or decrease
related to pushdown accounting adjustments required by mergers or acquisitions
or from the sale of ARI's Houston properties.

(l) Shares. "Shares" shall mean either ERLY Shares or ARI Shares. Whether
"Shares" means ERLY Shares or ARI Shares shall be determined by the Company's
Board of Directors in its sole discretion; provided, however, that if ARI Shares
are to be issued pursuant to Paragraph 7(d) of this Plan, the Company shall
acquire such shares by purchases on the open market and shall not issue treasury
shares or authorized but unissued shares in satisfaction of the Company's
obligation under Paragraph 7(d).

4. Plan Committee. (a) The Committee shall select one of its members as its
Chairman and shall hold its meetings at such time and places as it shall deem
advisable. Members of the Committee may, but need not be, employees, officers,
or directors of the Company. The Board of Directors may at any time remove,
replace, substitute, or add any one or more members of the Committee.

(b) Subject to the express provisions of this Plan, the Committee shall have
complete authority to interpret the provisions of the Plan, to prescribe, amend,
and rescind rules and regulations relating to the Plan, to determine the details
and provisions of each Incentive Share issued hereunder, and to make all other
determinations necessary or advisable in the Plan's administration.
Determinations of the Committee on matters of interpretation of the Plan shall
be final, binding and conclusive on all Participants.

<PAGE>
<PAGE> 23

(c) A majority of the members of the Committee shall constitute a quorum, and
any action taken by a majority present at a meeting at which a quorum is present
or any action taken without a meeting evidenced by a writing executed by a
majority of the whole Committee shall constitute the action of the Committee.

(d) Company Assistance. The Company shall supply full and timely information
to the Committee on all matters relating to eligible employees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require or request.

5. Participation. Any Employee of the Company shall be eligible for selection
to participate in the Plan. Based on recommendations from the President of the
Company the Committee shall select the Employees to participate in the Plan (the
"Participants" or, individually, "Participant"). In determining which Employees
shall participate, the President and the Committee shall take into account the
provisions of the Plan, the duties of the Employee, the Employee's past, present
and future contributions to the success of the Company, and such other factors
deemed relevant in connection with accomplishing the purpose of the Plan.
Nothing contained herein to the contrary withstanding, the Chairman and
President of the Company and each of its subsidiaries and divisions shall
participate in the Plan at the levels specified in Paragraph 7(b) below.

6. Number of Erly Shares Subject to the Plan. (a) The number of ERLY Shares
which may be issued hereunder shall not exceed an aggregate of 250,000 shares.

(b) In the event that the outstanding shares of ERLY or the Company are
hereafter increased, or if other securities are issued by the Company by reason
of stock split, spin-off, or stock dividend, no adjustment shall be made to the
number of shares issuable pursuant to this Plan.

7. Terms and Conditions of Awards. (a) Each award under this Plan shall be an
award with respect to a period of two consecutive fiscal years, herein called an
Award Period. Each year within an Award Period is herein called an Award Year.
The first Award Period and Award Year shall begin on April 1, 1994 and a new
Award Year shall begin on the first day of each succeeding fiscal year until the
Plan is terminated by the Board of Directors. Each subsequent Award Year shall
commence at the termination of the preceding Award Year.

(b) Subject to paragraph 7(c) below, Participants in the Plan shall be eligible
to receive the indicated percentage of their base salary as a bonus based on the
Company's Return on Equity during an Award Year for the Company or its division
or subsidiary based on the following formula:

American Rice, Inc.
Return on Equity
---------------------------------------------------
Title or 15.00% 18.00% 21.00% 24.00%
Office (1) to 17.99% to 20.99% to 23.99% to 26.99% 27.00+%
----------------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Department Manager/
Assistant Vice
President 5% 10% 20% 30% 40%

Vice President 10% 20% 30% 50% 65%

Senior Vice
President 10% 25% 50% 75% 100%

Executive Vice
President 15% 30% 60% 90% 120%

President 15% 30% 60% 105% 135%

Chairman 15% 30% 60% 105% 135%

</TABLE>

<PAGE>
<PAGE> 24

(1) Plan participants holding more than one of the indicated titles shall not
be entitled to more than one bonus, but rather shall participate at the highest
bonus level indicated.

(c) Bonuses for an Award Year shall be payable over an Award Period. For each
Award Period, bonuses shall be seventy percent (70%) earned in the first Award
Year if the Company, division or subsidiary achieves a Return on Equity of
fifteen percent (15%) or greater and the remaining thirty percent (30%) of the
bonus will be earned only if the Company, division or subsidiary achieves a
Return on Equity of at least fifteen percent (15%) in the next succeeding Award
Year during the Award Period. A bonus for an Award Year shall be earned only if
the Participant is an employee of the Company or one of its subsidiaries or
divisions at the end of the Award Year.

(d) Bonuses will be payable not later than forty-five (45) days after the
Company files its annual report on Form 10-K with the United States Securities
and Exchange Commission ("SEC"). All bonuses shall be payable eighty (80%)
percent in cash and twenty (20%) percent in Incentive Shares. The number of
Shares to be issued in payment of the stock portion of the bonus shall be (i)
the dollar value of the bonus to be paid in Incentive Shares divided by (ii) the
average Fair Market Value of a Share during the last five weeks of the Award
Year in which the bonus is earned.

(e) Except as set forth in paragraph 5 above, at the beginning of each
subsequent Award Year the Committee, in its discretion, shall determine and
identify the Employees who shall participate in the Plan during the Award Period
beginning with such Award Year.

(f) The Incentive Shares earned by an Employee shall not entitle the Employee
to voting rights or any other rights of a shareholder with respect thereto until
stock certificates representing the Shares are actually issued.

(g) If an Employee holds more than one position in the Company and its
subsidiaries and/or divisions, or if an Employee holds positions in more than
one of the Company, its divisions and subsidiaries, the potential bonus for an
Award Year shall be calculated for each position held with the Company and each
subsidiary and each division during the Award Year, but only the highest bonus
earned shall be paid.

8. Transferability. Except as provided in Paragraph 9(b), Incentive Shares
granted pursuant to the terms of this Plan shall not be transferable for a
period of two years following their issue other than upon the death of a
Participant.

9. Termination; Death; Disability or Retirement.

(a) Any unearned cash bonus and Incentive Shares payable or issuable pursuant
to the terms of this Plan shall be forfeitable upon termination of employment
for any reason and earned payments will be made in accordance with paragraph
7(d).

<PAGE>
<PAGE> 25

(b) If any Employee shall die, retire pursuant to the Company's normal
retirement policy, or become permanently and totally disabled as determined in
accordance with the applicable personnel policies, the Employee's payments
earned under the terms of this Plan shall become 100% nonforfeitable on the
date of such death, retirement or disability. In the event of an Employee's
death or mental disability, the Bonus and Incentive Shares will be issued in
accordance herewith to the party or parties to whom the Employee's rights shall
have passed by Will or otherwise by law. No transfer of an Incentive Share by
the Employee by will or by the laws of descent and distribution shall be
effective to bind the Company, unless the Company is furnished a written notice
thereof and an authenticated copy of the will or such other evidence as the
Company may deem necessary to establish the validity of the transfer.

10. Issuance of Stock Certificates. The Company shall not be required to issue
or deliver any certificate for Shares prior to fulfillment of all of the
following conditions, if applicable:

(a) The admission of such Shares to listing on all stock exchanges on which the
Shares are then listed.

(b) The obtaining of any approval or other clearance from any federal or state
governmental agency which the Committee shall in its sole discretion determine
to be necessary, or advisable.

11. Amendment and Termination of the Plan. This Plan may not be amended more
often than once every six months other than to comply with changes to the
Internal Revenue Code.

12. Miscellaneous.

(a) Continuing Employment. Nothing contained in the Plan or any related
agreement shall obligate the Company to continue the employment of any Employee
for any period or interfere in any way with the right of the Company to reduce
the Employee's compensation or change the Employee's title or terms of
employment, subject to any employment agreement which may exist from time to
time between the Company and the Employee.

(b) Other Compensation Plans of Company. This Plan has no effect on the rights
and obligations of Employees of the Company or under any other qualified or
nonqualified compensation plan of the Company.

(c) Plan Binding on Successors. This Plan shall be binding on each of the
parties hereto and their successors and assigns.

(d) Severability. If any provision of this Plan is held to be illegal,
invalid, disqualifying or unenforceable under present or future laws, such
provision shall be fully severable; the Plan shall be construed and enforced as
if such illegal, invalid, disqualifying or unenforceable provision had never
comprised a part of the Plan; and the remaining provisions of the Plan shall
continue in full force and effect and shall not be affected by the illegal,
invalid or disqualifying or unenforceable provision of its severance from this
Plan. Furthermore, in lieu of such illegal, invalid or disqualifying or
unenforceable provision, there shall be added automatically as a part of this
Plan a provision as similar in terms to such illegal, invalid, disqualifying or
unenforceable provision a may be possible and be legal, valid, qualifying and
enforceable.

(e) Assignment and Alienation. The Employee's rights under this Plan may not
be assigned or alienated, whether voluntarily or involuntarily, and any
attempted assignment or alienation of such rights shall be null and void.

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<PAGE> 26

(f) Gender Interpretation. In all cases where appropriate, words of one gender
include the other genders, the singular includes the plural, and the plural
includes the singular.

(g) Applicable Law. This Plan will be governed by the laws of the State of
Texas.

(h) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered or mailed by
certified or registered mail to the Company at its regular place of business.

<PAGE>
<PAGE> 27

ERLY INDUSTRIES INC.

SHAREHOLDERS' PROXY

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints GERALD D. MURPHY and DOUGLAS A. MURPHY as
Proxies, each of them with the power to appoint his substitute, and hereby
authorizes them to represent and to vote as designated below, all of the shares
of common stock of ERLY Industries Inc. held on record by the undersigned on
August 3, 1995, at the Annual Meeting of Shareholders to be held on September 6,
1995, or any adjournment thereof.

1. ELECTION OF DIRECTORS __ FOR all nominees listed below (except as marked
to the contrary below)

__ WITHHOLD AUTHORITY (to vote for all nominees
listed below)

G.D. Murphy, D.A. Murphy, W.H. Burgess, B.J. McFarland and A.M. Wiener.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below):

______________________________________________________________________________

2. To amend the Articles of Incorporation to increase the number of authorized
shares of the Company's common stock, $.01 par value, from 5,000,000 shares
to 15,000,000 shares.

___ For ___ Against ___ Abstain

3. Approval of the American Rice, Inc. Incentive Compensation Plan.

___ For ___ Against ___ Abstain

4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

<PAGE>
<PAGE> 28

ERLY INDUSTRIES INC.

SHAREHOLDERS' PROXY

____________ ______________________
Proxy Number Shares of common stock

This Proxy when properly executed and returned, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted for Proposals 1, 2 and 3.

Dated...............................,1995

_________________________________________
Signature

_________________________________________
Signature, if held jointly

IMPORTANT: Please sign exactly as name appears herein. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.