<PAGE> 1
<TABLE>
<S> <C>
GERALD D. MURPHY [LOGO ERLY Industries Inc.]
Chairman and Chief Executive Officer 10990 Wilshire Boulevard
Suite 1800
Los Angeles, California
90024
</TABLE>
September 25, 1997
Dear Fellow Shareholder:
Crucial decisions affecting the future of your Company, ERLY Industries
Inc. and its principal subsidiary, American Rice, Inc., will be made at the
Annual Meeting of Shareholders of ERLY on October 17, 1997. YOUR VOTE IS
IMPORTANT. I hope you will attend, but if you cannot, I hope you will date, sign
and return the enclosed WHITE Proxy Card assuring that your vote will be
counted. Your Management team, which I sincerely believe represents the best
choice for ERLY's future, wants and needs your support.
You should be aware that a small group of dissident shareholders who call
themselves The Powell Group have started a proxy fight in an attempt to gain
three of the five Board seats which are up for election at the October 17
meeting. WE URGE YOU NOT TO SIGN ANY BLUE PROXY CARDS THAT THE POWELL GROUP MAY
GIVE YOU. INSTEAD, PLEASE DATE, SIGN AND MAIL YOUR BOARD'S ENCLOSED WHITE PROXY
CARD TODAY.
DON'T LET THESE INTERLOPERS RUIN YOUR COMPANY
Consider these questions about The Powell Group, who own 3.6% of the
outstanding shares and are attempting to take control of your Company:
- Companies like ERLY benefit from directors with relevant management and
operating experience in large publicly-held companies. That is especially
true in the international rice business where experience and personal
relationships are critically important. DO YOU WANT TO TURN THE
MANAGEMENT OF YOUR COMPANY OVER TO THE POWELL GROUP'S NOMINEES WHO HAVE
NO EXPERIENCE WHATSOEVER IN MANAGING OR OPERATING A COMPANY LIKE ERLY?
- The Powell Group was instigated by a stockbroker, Noble Trenham, who owns
only twelve shares of ERLY stock and is soliciting your proxy in the hope
of collecting a "contingent fee" of more than $500,000 if The Powell
Group gains control of ERLY. Do you think your Company should pay The
Powell Group the more than $750,000 they have said that they intend to
take from ERLY in "expense reimbursement" if they win the proxy fight? DO
YOU THINK THAT MR. TRENHAM HAS A CONFLICT OF INTEREST AND IS PERHAPS MORE
INTERESTED IN THAT WHOPPING FEE THAN THE INTERESTS OF THE SHAREHOLDERS?
CAN YOU BELIEVE HIM?
- The Powell Group has been a shareholder of ERLY for only six months.
Nanette Kelley admits that she had not even heard of ERLY Industries
before Noble Trenham contacted her to buy ERLY stock and initiate a proxy
fight several months ago. DO YOU BELIEVE THEY ARE LONG-TERM INVESTORS OR
ONLY SHORT-TERM OPPORTUNISTS TRYING TO CASH IN AT YOUR EXPENSE? IF SHE
DIDN'T KNOW ABOUT ERLY, HOW CAN SHE POSSIBLY KNOW ENOUGH ABOUT THE
INTERNATIONAL RICE BUSINESS TO MANAGE YOUR COMPANY?
- We believe that Mr. Trenham and other members of The Powell Group have
made numerous misrepresentations to the shareholders of ERLY. If you
conclude that they are willing to hold out false promises and mislead you
to get your vote, DO YOU THINK YOU CAN TRUST THEM TO MANAGE YOUR COMPANY?
<PAGE> 2
MANAGEMENT'S LONG-TERM STRATEGY IS WORKING
THE BUSINESS PLAN. Two years ago, your Management publicly stated our
business strategy, including four major actions:
- BUILD ON BRAND LEADERSHIP -- We enhanced ERLY's branded leadership by
acquiring Early California Foods, which has the largest U.S. olive brands
with 36% and 25% of the black olive and green olive markets,
respectively. Early California Foods is a company which I founded in
1964. We sold it to a very large conglomerate in 1985 for almost $90
million and bought it back in 1996 for less than $40 million.
- CONTINUE EXPANSION INTO NEW MARKETS -- We expanded into new export rice
markets in the Middle East and Europe to further diversify our worldwide
sales program and reduce dependence on any one particular market. The
Powell Group's claim that we have lost our Saudi Arabian rice market
because of litigation with a rice processor is totally false. We have
alternative processing sources and are continuing to market and sell our
branded rice products in that market without reduction in volume.
- INCREASE DIVERSITY OF SOURCES -- We developed additional sources of raw
products outside of the United States to achieve our goal of a truly
global rice company and minimize the impact of commodity volatility.
- IMPROVE SIZE AND SCALE EFFICIENCY -- Sales have grown in rice, olives,
and Chemonics consulting. Consolidated sales for fiscal 1997 were $614
million, an all-time high and a 26% increase over the prior year.
RESULTS. In implementing that strategy, we have continued the progress the
Company has made in the last five years. One result is that shareholders' equity
increased 48% in the last two fiscal years.
ERLY INDUSTRIES INC.
(MILLION $)
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) ERLY INDUSTRIES
<S> <C>
1993 -9.2
1994 8.4
1995 16.8
1996 17.5
1997 24.8
</TABLE>
Your Management team has 230 collective years of experience in the food
industry. We have executives who have worked a total of 141 years with Doug
Murphy, our President, and me. Doug and I firmly believe that we have a
professional management team with unmatched experience in our industry.
<PAGE> 3
NO ONE AMONG THE POWELL GROUP HAS ANY EXPERIENCE IN THE BRANDED RICE
PRODUCTS BUSINESS, THE INTERNATIONAL RICE BUSINESS, OR THE OLIVE BUSINESS.
I have consistently stated in my annual shareholder letters that we, your
Management, are focused on building long-term value. I think that the
shareholders equity graph shows that we are accomplishing that objective.
Shareholders who have been patient are, I believe, now also seeing the results
of our efforts on stock value as well, as the stock market is just beginning to
reflect the value we are creating. The price of ERLY stock has outperformed the
average return for the S&P Food Products Index by over 62% during the last five
fiscal years. The following comparison assumes that $100 was invested at the
beginning of the period in ERLY Common Stock and in each index.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) ERLY Industries NASDAQ Stock S&P Food
<S> <C> <C> <C>
1992 100 100 100
1993 94 115 109
1994 135 124 101
1995 333 138 120
1996 299 187 151
1997 309 208 190
</TABLE>
A HOUSE DIVIDED . . .
I do not doubt that Ms. Kelley intends to be a disruptive director if she
gets enough proxies to elect herself to the Board. She has convinced me of her
hostility toward Management and her lack of concern for the impact her attacks
on Management have on the Company's employees, suppliers, customers, and
shareholders. THAT IS WHY WE ARE TRYING TO ELIMINATE CUMULATIVE VOTING, so that
she cannot elect herself to the Board with proxies on a fairly small minority of
shares. I am willing to give up my power to elect myself to the Board with my
own personal shareholdings, the largest in the Company, in order to avoid a
divisive Board of Directors which can't possibly be in the best interests of the
shareholders.
THE TRUTH ABOUT THE TEXAS VERDICT
A few years ago, my son Doug and I were invited to participate in a
proposed real estate development in Texas with a developer I had known for
years. I pledged some of my ERLY stock in connection with the venture. Doug and
I tried to extricate ourselves from any further relationship with the promoters
of the project when management disagreements arose between us. We got sued in a
Texas state court by the promoters. We counter sued them. The promoters claimed
that we had breached a contract with them and made misrepresentations to them.
We claimed there was no contract and that they had made misrepresentations to
us. ERLY and ARI got involved in the suit when a subpoena served by the
promoters on investment bankers developing a financing transaction for the
Company jeopardized that transaction.
<PAGE> 4
Well, we lost, or at least we lost with the jury. The promoters' lawyer
convinced the jurors that Doug and I are something that we are not and could not
possibly be after serving as responsible members of the Management of your
Company for many years. Somehow, that spilled over to ERLY and ARI which I think
is unfair because I don't believe that the Company has done anything wrong. What
I can tell you is that the promoters' very skilled lawyer won an emotional
verdict which we and our lawyers believe is not supported by the evidence
introduced in the trial. We expect to prevail on appeal if the trial judge
doesn't overturn the jury's verdict herself.
The Powell Group's claims that the Murphys have been convicted of fraud and
that the Company has been held liable for $18 million are not true. The suit is
a civil suit, not a criminal suit. The jury rendered alternative verdicts for
breach of contract and for tort based on misrepresentations. The verdict against
ERLY and ARI, which is also against the Murphys, is for approximately $9.7
million. It is not likely that a judgment will be entered in the near future, if
ever, so the Company is not in any imminent danger of having to pay anything to
the plaintiffs in the suit.
PLEASE RETURN THE WHITE PROXY CARD PROMPTLY
I urge you to read all of the material from your Management carefully. YOU
CAN PROTECT YOUR INVESTMENT BY SIGNING, DATING AND RETURNING THE ENCLOSED WHITE
PROXY CARD MARKED FOR EACH OF OUR PROPOSALS IN THE ENVELOPE PROVIDED.
We thank you for your continued support and your prompt attention to these
important matters. If you have any questions or comments, please also feel free
to call MacKenzie Partners, Inc., which is assisting us with our solicitation,
at (800) 322-2885.
Sincerely,
/s/ Gerald D. Murphy
Gerald D. Murphy
Chairman
