<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ONE)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
ERLY Industries Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
AMENDED
PRELIMINARY COPY
GERALD D. MURPHY [LOGO] ERLY INDUSTRIES INC.
Chairman and Chief Executive Officer 10990 Wilshire Boulevard
Suite 1800
Los Angeles, California 90024
September __, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of ERLY Industries Inc., to be held at 10:00 a.m. on ______,
October __, 1997, at the Westwood Marquis Hotel, 930 Hilgard Avenue, Los
Angeles, California 90024.
At the Annual Meeting, we will vote on the proposals described in
the accompanying Notice and Proxy Statement. We will also report to you on the
operations of the Company. You will have the opportunity to ask questions about
the Company that may be of general interest to shareholders.
Your vote is very important regardless of how many shares you own.
Please take a few minutes to review the Proxy Statement and to sign and date
your WHITE Proxy Card and return it in the envelope provided.
You may have received a Proxy Statement and a blue Proxy Card
from the Powell Group seeking to elect its own slate of five directors and to
oppose the amendments to the Bylaws and Articles of Incorporation discussed
below. The Board of Directors opposes the Powell Group's proxy solicitation and
urges the shareholders of the Company not to return their proxy card or, if any
shareholder has already done so, to execute, date and return the white Proxy
Card enclosed with these materials which will NEGATE ANY PRIOR SUBMISSION OF THE
POWELL GROUP'S PROXY CARD.
The Powell Group is seeking to obtain control of the Company after
the acquisition of approximately 3.6% of its outstanding shares. The Company
believes that they have made no definitive offer to purchase any additional
amount of shares or make any other significant capital infusion, and we do not
believe that they have articulated any cohesive management plan or strategy.
Noble Trenham, one of the members of the Powell Group, and his firm, First
Global Securities, Inc., only own only twelve shares. The other members of the
Powell Group, Nanette Kelley and her companies, including The Powell Group and
Farmers Rice Milling Company, Inc., bought their 3.6% interest in the Company in
March 1997 in a transaction arranged by Mr. Trenham and his firm. At the same
time, Mr. Trenham and his firm were retained by The Powell Group to assist them
in taking control of the Company for a fee of $505,000, plus expenses, if they
are successful.
Noble Trenham has previously attempted to take control of the
Company. In 1989, he, his firm, and others, with collective shareholdings of
only approximately 5%, planned and announced, but quickly abandoned, a proxy
contest for election of directors. At the last annual meeting of shareholders,
Mr. Trenham tried to vote certain proxies against the Board of Directors'
nominees. In 1987, Mr. Trenham was sued by the United States Securities and
Exchange Commission and was permanently enjoined by a federal court from
violating federal securities laws as a result of actions relating to at least
eight other publicly-held companies. OF THE ESTIMATED $750,000 OF EXPENSES THE
POWELL GROUP PROJECTS IT WILL SPEND IN ITS EFFORTS TO TAKE CONTROL OF THE
COMPANY, $505,000, PLUS EXPENSES, WILL BE PAID TO NOBLE TRENHAM'S
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FIRM IF THE POWELL GROUP IS SUCCESSFUL. THE POWELL GROUP ALSO INTENDS TO HAVE
THE COMPANY REIMBURSE SUCH AMOUNTS IF IT ACQUIRES CONTROL OF THE BOARD OF
DIRECTORS.
Management of the Company owns approximately 37% of the outstanding
Common Stock, over ten times the amount owned by the Powell Group. The top
eleven executive officers of the Company and its subsidiary, American Rice,
Inc., have, in the aggregate, over 230 years of experience in managing and
operating in the agribusiness industry.
At the Annual Meeting, shareholders will be asked to re-elect the
current Board of Directors and to adopt one amendment to the Bylaws of the
Company to eliminate cumulative voting and one amendment to the Articles of
Incorporation of the Company to require shareholder action only at a
shareholders meeting and not by written consent. The proposed changes to the
Bylaws and the Articles of Incorporation are designed to make it more difficult
for any shareholder, including shareholders like Noble Trenham, with small
investments in the Company, to wage proxy contests for the Board of Directors
seeking to elect one or more directors. For example, with cumulative voting,
shareholders holding only 16.7% of the outstanding Common Stock could elect one
director to a five person Board of Directors. Without cumulative voting, holders
of a majority of the outstanding Common Stock could elect all directors and
other shareholders would not be able to elect any directors.
Amendment of the Articles of Incorporation to require shareholder
action at a meeting would prevent shareholder actions by written consent,
thereby preventing the Powell Group from resurrecting its recent proposal to
remove the Board of Directors without immediately electing a new Board of
Directors. The Company's proposals would not affect the rights of shareholders
to call shareholder meetings, but may have the effect of entrenching Management.
THE BOARD OF DIRECTORS BELIEVES THE ELECTION OF ANY OF THE NOMINEES
OF THE POWELL GROUP IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND URGES YOU TO REVIEW THE ENCLOSED PROXY STATEMENT BEFORE
DECIDING HOW YOU WILL VOTE. THE BOARD OF DIRECTORS ALSO RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSALS SET FORTH IN THE ENCLOSED PROXY STATEMENT
AND ON THE WHITE PROXY CARD.
I look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ GERALD D. MURPHY
Gerald D. Murphy
Chairman of the Board and
Chief Executive Officer
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AMENDED
PRELIMINARY COPY
ERLY INDUSTRIES INC.
10990 WILSHIRE BOULEVARD
SUITE 1800
LOS ANGELES, CALIFORNIA 90024
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held October __, 1997
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
______, October __, 1997 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 approve an amendment to the Company's Bylaws to
eliminate cumulative voting in the election of
directors;
2. To approve an amendment to the Company's Articles of
Incorporation to provide that actions required or
permitted to be taken by the shareholders must be
effected at a duly called annual or special meeting of
shareholders and not by written consent;
3. To elect five directors to serve until the next Annual
Meeting of Shareholders; and
4. To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Friday,
August 22, 1997 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 ANNUAL MEETING OR NOT, MANAGEMENT
URGES YOU TO COMPLETE, SIGN AND RETURN YOUR WHITE PROXY CARD 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 WHITE PROXY CARD.
By Order of the Board of Directors,
Thomas A. Whitlock
Vice President and
Assistant Secretary
Los Angeles, California
September __, 1997
IMPORTANT
REGARDLESS OF WHETHER YOU EXPECT TO BE PRESENT PERSONALLY AT THE
MEETING, YOU ARE REQUESTED TO SIGN THE ENCLOSED WHITE PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED SELF-ADDRESSED, POSTAGE-PREPAID ENVELOPE. BY SIGNING
AND RETURNING THE ENCLOSED WHITE PROXY CARD PROMPTLY, YOU WILL SAVE THE COMPANY
FOLLOW-UP EXPENSES IN CONNECTION WITH THIS PROXY SOLICITATION.
<PAGE> 5
AMENDED
PRELIMINARY COPY
ERLY INDUSTRIES INC.
10990 WILSHIRE BOULEVARD
SUITE 1800
LOS ANGELES, CALIFORNIA 90024
PROXY STATEMENT
----------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
OCTOBER __, 1997
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of ERLY Industries Inc. (the
"Company") for use at the Company's Annual Meeting of Shareholders to be held on
October __, 1997, and at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders. It is
anticipated that this Proxy Statement will be mailed to shareholders on or about
September __, 1997.
Shares represented by proxies in the accompanying white Proxy Card
which are returned properly executed will be voted in accordance with the white
Proxy Card, 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
of the Company of an instrument revoking such proxy, by the filing with the
Secretary of the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. BY EXECUTING AND DATING A
WHITE PROXY CARD, YOU WILL BE REVOKING ANY AND ALL PRIOR PROXIES SOLICITED BY
THE COMPANY OR THE POWELL GROUP. SEE "THE POWELL GROUP'S SOLICITATION."
VOTING SECURITIES
Only shareholders of record of the Company's Common Stock at the
close of business on August 22, 1997 will be entitled to vote at the Annual
Meeting, or at any adjournment thereof (the "Record Date"). On that date, the
Company had outstanding 5,221,337 shares of Common Stock. Each share is entitled
to one vote, subject, however, to the possible right of each shareholder to
cumulate his or her votes in the election of directors. For an explanation of
cumulative voting, see "Election of Directors" and "Proposed Amendments to the
Bylaws and Articles of Incorporation -- Proposal 1 -- Amendment to the Bylaws
to Eliminate Cumulative Voting."
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED WHITE PROXY CARD AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. IF YOUR SHARES ARE HELD IN "STREET
NAME," ONLY YOUR BANK OR BROKER CAN VOTE YOUR SHARES AND ONLY UPON YOUR SPECIFIC
INSTRUCTIONS. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND
INSTRUCT HIM OR HER TO VOTE THE WHITE PROXY CARD AS SOON AS POSSIBLE.
THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN ANY PROXY CARD OR
CONSENT CARD SENT TO YOU BY THE POWELL GROUP. IF YOU HAVE ALREADY DONE SO, YOU
MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY OR CONSENT BY DELIVERING A WRITTEN
NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY OR A LATER DATED AND
EXECUTED WHITE PROXY CARD IN THE ENCLOSED ENVELOPE. SEE "THE POWELL GROUP'S
SOLICITATION."
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IF YOU HAVE ANY QUESTIONS OR NEED FURTHER ASSISTANCE IN VOTING YOUR
SHARES, PLEASE CALL ERLY INDUSTRIES INC.'S PROXY SOLICITOR, MACKENZIE PARTNERS,
INC., TOLL FREE AT (800) 322-2885.
Where no vote is specified on the white proxy card but such white
proxy card is returned and signed, the proxy represented thereby will be voted
FOR Proposals 1 (elimination of cumulative voting), 2 (elimination of
shareholder action by written consent) and 3 (election of directors), and in the
discretion of the proxies named therein with respect to any other proposal that
properly comes before the Annual Meeting. Where no vote is specified or where a
vote for all nominees is marked with regard to Proposal 3, the votes represented
by a proxy will be cast, unless contrary instructions are given, at the
discretion of the proxies named therein in order to elect as many nominees as
believed possible under the then prevailing circumstances.
Under the Company's bylaws and California law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. The Company believes that
brokers will not have the right to vote the shares they hold unless instructed
by the beneficial owners. Any shares not voted (whether by abstention, broker
non-vote or otherwise) will have no impact on the election of directors. Any
shares represented at the Annual Meeting but not voted (whether by abstention,
broker non-vote or otherwise) with respect to the proposal to adopt the
amendments to the Bylaws to eliminate cumulative voting (PROPOSAL 1) and to the
Articles of Incorporation to eliminate shareholder action by written consent
(PROPOSAL 2) will be equivalent to a no-vote since approval of a majority of the
outstanding shares is required to adopt each amendment. At the 1994, 1995, and
1996 annual meeting of shareholders, 84.0%, 88.9% and 78.5%, respectively, of
the outstanding shares voted for the election of directors. At each of such
meetings approximately 50 shareholders were present, including officers,
directors and employees of the Company.
As further discussed below, the Board of Directors opposes the
Powell Group's proxy solicitation and urges the shareholders of the Company NOT
to return their proxy card or, if any shareholder has already done so, to
execute, date and return the white Proxy Card enclosed with these materials
which WILL NEGATE ANY PRIOR SUBMISSION OF THE POWELL GROUP'S PROXY CARD.
The Board of Directors believes that the implementation of the
Powell Group's goal, the installation of their management team, to be
ill-founded and not in the best interest of shareholders. The Company believes
that the Powell Group has not articulated any coherent strategy or plan for the
future of the Company. Further, one of the principal organizers of the Powell
Group, Noble Trenham, has been sued by the Securities and Exchange Commission
for violating Federal Securities Laws and had a permanent injunction entered
against him in connection with such suit. Ms. Kelley's principal business
experience has been running her privately owned company which she inherited.
Finally, the Powell Group has only a small interest in the Company
(approximately 3.6% of the shares) and has not indicated any willingness to
invest significant additional funds to purchase shares or otherwise to invest in
the Company; however, if successful, they have indicated that they will seek to
have the Company reimburse them for their expenses which they estimate to be
approximately $750,000. Included in this amount will be $505,000 IN FEES, PLUS
EXPENSES, which will be paid to Mr. Trenham's firm. Therefore, if the Powell
Group is successful, the Company will be asked indirectly to reward a holder of
twelve shares with over a half million dollars, without Shareholder approval.
The reimbursement of such expenses, and the expenses that the Company is
incurring in response to the Powell Group, will reduce cash and shareholders'
equity. For further information regarding the Powell Group, see "The Powell
Group's Solicitation."
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 the Record Date 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 Summary Compensation
Table and (iv) all directors and executive officers of the Company and its
subsidiaries as a group. Except as indicated, each of the shareholders directly
owns all of the shares beneficially owned
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by such shareholder, has sole voting and investment power with respect to such
shares and each shareholder does not own of record any shares for which such
shareholder is not the beneficial owner.
<TABLE>
<CAPTION>
Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership class*
------------------- -------------------- -----------
<S> <C> <C>
Gerald D. Murphy, Chairman 1,564,545 shares 30.0%
ERLY Industries Inc. (1) (2)
10990 Wilshire Blvd.
Los Angeles, CA 90024
Douglas A. Murphy, President 606,993 shares 11.6%
and Director
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024
Kennedy Capital Management, Inc. 585,518 shares 11.2%
10829 Olive Boulevard (3)
St. Louis, MO 63141
William H. Burgess, Director 202,750 shares 3.9%
550 Palisades Drive
Palm Springs, CA 92262
Richard N. McCombs 137,461 shares 2.6%
Vice President and
Chief Financial Officer
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024
Bill J. McFarland, Director 35,613 shares 0.7%
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024
Alan M. Wiener, Director 4,009 shares 0.08%
ERLY Industries Inc.
10990 Wilshire Blvd.
Los Angeles, CA 90024
Thurston F. Teele, President -- --
Chemonics Industries, Inc.(4)
1133 20th Street, N.W.
Washington, D.C. 20036
All directors and executive officers 1,969,328 shares (5) 37.1%
as a group (11) persons)
</TABLE>
- ----------
* The percentages of shares held assume that options and warrants held
by the particular individual, if any, that are exercisable on the
Record Date, or within 60 days of such date, have been exercised,
and no others.
(1) Gerald D. Murphy, Chairman of the Board of the Company, is the
record holder of 952,502 shares.
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(2) Shares beneficially owned by Gerald D. Murphy include 612,043
shares indirectly owned by him which are (i) owned directly by his
son Douglas A. Murphy, President of the Company, and (ii) held in
trust for his grandson. Of this total, Gerald D. Murphy has voting
control of the 5,050 shares held in trust for his grandson, however,
he denies holding voting or investment control of the balance of the
606,993 shares owned directly by his son, Douglas A. Murphy.
(3) Based on Schedule 13G filed February 7, 1997 with the Securities and
Exchange Commission. The filer is an investment advisor with
discretionary accounts for investment purposes. The filer indicated
that it has sole dipositive power of the entire 585,518 shares and
sole voting power for 336,080 of the shares.
(4) Chemonics Industries, Inc. is a wholly-owned subsidiary of the
Company.
(5) The number of shares shown as beneficially owned by all directors
and officers as a group includes 88,550 shares issuable upon the
exercise of stock options held by officers.
Gerald D. Murphy and Douglas A. Murphy have pledged a substantial
number of shares of Common Stock of the Company they own as collateral for
personal loans, including loans related to their acquisition of a building
partially leased by American Rice, Inc. See "Compensation Committee Interlocks
and Insider Participation-Litigation."
PROPOSED AMENDMENTS TO THE BYLAWS AND ARTICLES OF INCORPORATION
GENERAL
The Company's Board of Directors has unanimously approved the
following amendments to the Company's Bylaws and Articles of Incorporation, as
set forth on Appendix A hereto, and has voted to recommend that the Company's
shareholders approve such amendments. PROPOSAL 1 would effect an amendment to
the Bylaws to eliminate cumulative voting and PROPOSAL 2 would effect an
amendment to the Articles of Incorporation to provide that shareholders may not
act by written consent but only at an annual or a special meeting (the
"Amendments").
The proposed Amendments are being presented to shareholders of the
Company for their individual approval as separate proposals. The Board of
Directors believes that, if adopted, the proposed Amendments, would effectively
reduce the possibility that dissident minority shareholders could either (i)
elect one or more directors or (ii) attempt to effect a sudden or surprise
shareholder action by way of written consent without the evaluation or
recommendations of the Company's Board of Directors, such as the Preliminary
Consent Solicitation originally filed by the Powell Group. See "The Powell
Group's Solicitation."
The Amendments are being proposed in response to the efforts of
Noble Trenham, an owner of only twelve shares of Common Stock, to try to
organize others to place his nominees on the Board of Directors or most
recently, to take control of the Company. In 1989, Mr. Trenham planned and
announced a short lived proxy contest to elect certain directors to the Board
of Directors. At the last annual meeting of shareholders, he attempted to vote a
number of proxies against the Board of Directors' nominees. More recently he was
instrumental in arranging for The Powell Group and its affiliates to purchase
their 3.6% interest in the Company after which he immediately began to work with
The Powell Group to seek control of the Company. The Company understands that
Mr. Trenham's broker/dealership and The Powell Group have entered into an
arrangement whereby such broker/dealership has been retained to assist The
Powell Group in seeking such control and will receive a fee of $505,000, plus
reimbursement of expenses, if they are successful. The activities of Mr. Trenham
have in the past diverted and currently are diverting, Management's time from
operating the Company and also diverting the Company's resources from what would
otherwise in the view of Management be more productive uses.
The Powell Group and its affiliates acquired only 3.6% of the
outstanding Common Stock of the Company in March 1997 yet they are now demanding
that the Company's Management, including the current Board of Directors, (who
own approximately 37% of the Company's outstanding shares), step down and be
replaced by the Powell Group's designees. Members of Management had their first
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substantive discussions and first met with Ms. Nanette Kelley and other
representatives of the Powell Group on July 17, 1997. At that time Management
was advised that the Powell Group wanted Management of the Company to resign and
be replaced by representatives of the Powell Group. Management was also advised
that shareholders of a majority of the Company's outstanding shares supported
the efforts of the Powell Group. Management was given 24 hours to acquiesce to
these demands or face the threat of removal. The Company believes that at no
time during the meetings with Management nor at any time thereafter, did the
representatives of the Powell Group give any sort of detailed explanation of why
they wanted Management removed or give the details of any potential strategy or
course of action that they wished the Company to pursue. Despite the Powell
Group's threats to Management, in subsequent filings with the Securities and
Exchange Commission they have only acknowledged support from 3.6% of the
Company's shareholders. The purported group consists almost entirely of the
holdings of The Powell Group and its controlling shareholder Nanette Kelley with
only nominal purported support from other shareholders. The Powell Group has not
indicated that they are willing to make any additional significant investment in
the Company as part of their demands for control, although they indicated that
they would help to facilitate a sale of the shares held by Gerald D. Murphy and
Douglas A. Murphy. In addition, the Company believes that the Powell Group has
not put forward any definitive plan or strategy for the Company. Instead they
ask that Management cede control to them merely because they have demanded that
they do so.
ADOPTION OF PROPOSAL 1, ELIMINATING CUMULATIVE VOTING, WILL MAKE IT
DIFFICULT, IF NOT IMPOSSIBLE, FOR MINORITY SHAREHOLDERS, SUCH AS THE POWELL
GROUP, TO ELECT ONE OR MORE DIRECTORS AND MAY MAKE IT EASIER FOR MANAGEMENT TO
CONTROL THE ELECTION OF ALL DIRECTORS. BOTH AMENDMENTS MAY IMPEDE OR DELAY
TRANSACTIONS WHICH ARE OPPOSED BY THE BOARD OF DIRECTORS EVEN THOUGH FAVORED BY
A MAJORITY OF THE SHAREHOLDERS. For instance, Management of the Company
could alone elect all the members of the Board of Directors without cumulative
voting if less than 74% of the shares were represented at a meeting. In any
event, even if 100% of the shares were represented at a meeting, without
cumulative voting, Management would currently only need proxies or votes
from holders of about 13% of the outstanding shares to assure election of the
Board of Directors' nominees, a feasible scenario in light of Management's
control of the Company's proxy materials and access to Company funds which may
be required in that connection. On the other hand, cumulative voting allows
shareholders holding only 16.7% of the outstanding Common Stock to elect one
director to a five person Board of Directors. Adoption of PROPOSAL 2,
eliminating shareholder action by written consent, will defeat any future
attempts by the Powell Group to remove the entire Board of Directors through the
written consent of shareholders and will make it more difficult for minority
shareholders to attempt to take shareholder action without the input of the
Board of Directors. Adoption of both of the Amendments may have significant
effects on the ability of minority shareholders of the Company, such as the
Powell Group, to change the composition of the incumbent Board of Directors.
Accordingly, shareholders are urged to read carefully the following sections of
this Proxy Statement, which describe the proposed Amendments and their purposes
and effects.
PURPOSES AND EFFECTS OF THE PROPOSED AMENDMENTS
The Board of Directors of the Company is asking shareholders to
consider and adopt the proposed Amendments to the Bylaws and Articles of
Incorporation in order to prohibit: (i) cumulative voting for election of
directors and (ii) actions by written consent of shareholders. The Board of
Directors believes that elimination of cumulative voting is in the best
interests of the Company's shareholders. Cumulative voting potentially
enables small groups of minority shareholders to band together to elect
directors to the Company's Board of Directors to support and pursue that group's
agenda as opposed to acting in the best interests of all shareholders. While
proportionate representation may work for certain pluralistic societies, the
Board of Directors believes that the Company should have a strong management
team with a shared vision and strategy aligned with that of a majority of its
shareholders for the future of the Company. Allowing for the election of one or
more directors representing minority shareholder groups creates the possibility
of a fragmented Board of Directors where Management may have to cater to special
interest groups in order to solicit support for the ongoing activities of the
Company. In addition, allowing representatives of groups that are potentially
overtly hostile to management or the majority of the Board of Directors' views
on the ongoing operation of the Company, such as representatives of the Powell
Group, would only serve to inhibit rather than open up the free flow of ideas
and deliberations which are essential to the Board of Directors' decision making
process. The Board of Directors believes that the shareholders should have the
ability to elect a Board of Directors which represents the best interests of all
of the shareholders as opposed to the interests of any particular group. The
Company's entire Board of Directors is elected annually and the Company's
shareholders are given the opportunity to replace any and all of the directors
if they are not satisfied with the Company's performance. Consistent with its
views, Management believes that an overwhelming majority of companies whose
shares are traded publicly do not use cumulative voting for the election of
directors.
The proposed amendment to the Articles of Incorporation would
prohibit shareholder action by written consent. The Board of Directors also
believes that the interests of all shareholders will be better served by
requiring that all shareholder actions be implemented by a duly authorized and
noticed meeting of shareholders, as opposed to by written consent. Requiring
that shareholder actions take place only after a shareholders' meeting has
numerous benefits such as allowing all shareholders to participate, express
their views and vote on the matter. Most actions by written consent can be
implemented by a majority of shareholders without the prior input, participation
or recommendation of Management of the Company or the remaining shareholders.
Shareholders should have the benefit of Management's
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recommendations in deciding on the appropriate course of action. Actions which
on their face seem innocuous can have potentially adverse consequences. For
example, as discussed further below, the Powell Group proposal, if implemented,
could trigger a default of the outstanding mortgage notes of the Company's
subsidiary. Further, the Powell Group originally filed written consent
soliciting material to remove the entire Board of Directors and call a special
meeting to elect a new Board of Directors, which would have left the Company
without a Board of Directors for at least 45 days. The second proposed Amendment
would also help ensure that the Board of Directors, if confronted by a surprise
proposal from a third party, such as that by the Powell Group, who has only
recently acquired a block of the Company's Common Stock, will have sufficient
time to review the proposal, consider appropriate alternatives and make its
recommendation to shareholders.
Management believes that while the adoption of the proposed
Amendments would make it more difficult for and discourage the holder of a small
block of the Company's Common Stock, such as the Powell Group, from attempting
to enact a surprise corporate action or elect one or more members to the Board
of Directors, it will not significantly impede actions by holders of
substantial blocks of stock, since California law enables holders of 10% or more
of the outstanding shares to call a meeting of shareholders. This statutory
mandated threshold protects the Company and its shareholders since it requires
that at least a reasonable percentage of the shareholders request an action
before the Company is required to call a meeting to address it.
To the extent that the proposed Amendments would be deemed to
discourage small groups of shareholders from attempting to enact shareholder
actions or capture seats on the Board of Directors, they could be deemed to
impede the ability of shareholders to implement changes to the governance and
management of the Company. Also, since these Amendments would require that all
shareholder actions be implemented through a shareholder meeting, it is possible
that a group holding the majority of the Company's shares could be impeded or
delayed from implementing their plans. As such, the proposed Amendments could
deter or discourage certain attempted takeover attempts, such as the one
currently being proposed by the Powell Group, and would encourage persons
seeking to acquire control of the Company to initiate such an acquisition
through arms-length negotiations with the Company's Management and Board of
Directors.
Takeovers or changes in Management of the Company which are
proposed and effected without prior consultation and negotiation with the
Company's Management are not necessarily detrimental to the Company and its
shareholders. However, the Board of Directors feels that the benefits of
seeking to protect its ability to negotiate with the proponent of an unfriendly
or unsolicited proposal to take over or restructure the Company outweigh the
disadvantages of discouraging such proposals.
THE ADOPTION OF THE PROPOSED AMENDMENTS MAY MAKE IT MORE DIFFICULT
OR DISCOURAGE A PROXY CONTEST OR THE ASSUMPTION OF CONTROL BY A HOLDER OF A
SUBSTANTIAL BLOCK OF THE COMPANY'S COMMON STOCK OR THE REMOVAL OF THE INCUMBENT
BOARD OF DIRECTORS AND COULD THUS HAVE THE EFFECT OF ENTRENCHING INCUMBENT
MANAGEMENT. At the same time, the amendments would help ensure that the Board,
if confronted by a surprise proposal from a third party who has recently
acquired a block of the Company's Common Stock, will have sufficient time to
review the proposal and appropriate alternatives to the proposal and to seek a
premium price for the shareholders.
The proposed Amendments are intended to encourage persons seeking
to acquire control of the Company to initiate such an acquisition through
arms-length negotiations with the Company's Management and Board of Directors.
The Amendments, if they are adopted, could also have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the company, even though such an attempt might be beneficial to the
Company and its shareholders, or supported by a majority of shareholders. It is
possible that one effect of the Amendments, if they are adopted, would be a
reduction in the price of the Common Stock since certain shareholders,
including institutions, may not want to invest in a company with anti-takeover
provisions in its charter documents.
Also of note is the fact that in some cases, the shareholder may
not truly be interested in taking over a company, but uses the threat of a
proxy fight and/or a bid to take over a company as a means of forcing such
company to repurchase the shareholder's equity position at a substantial
premium over the market. The Powell Group is not taking any action the Company
is aware of which would indicate that the Powell Group is seeking to have its
shares repurchased at a premium.
The Company's Articles of Incorporation and Bylaws do not contain
any other anti-takeover provisions except for the proposed Amendments. However,
the Articles of Incorporation authorize the issuance of 6,000 shares of
preferred stock and authorize the Board of Directors to determine the rights,
preferences, privileges and restrictions thereof. Rights could be granted to
the holders of preferred stock that could reduce the Company's attractiveness
as a potential takeover target, make the removal of Management more difficult,
or adversely impact the rights of holders of Common Stock. No preferred
stock is currently outstanding and the Company has no present intention to
issue any preferred stock.
The proposed Amendments are specifically authorized under the
California Corporations Code (the "Code"). The Board of Directors, which
unanimously approved the Amendments and recommended that they be submitted to
the Company's shareholders for adoption, does not presently contemplate
recommending the adoption of any further amendments to the Articles of
Incorporation or the Bylaws which would affect the ability of third parties to
take over or change control of the Company.
The rules of the Nasdaq National Market System do not prohibit the
proposed Amendments. Such rules do require the Company to actually hold an
annual meeting of shareholders to elect directors and to solicit proxies at
each meeting of shareholders. The adoption of the Amendments could result in a
decrease in the price of the Common Stock.
PROPOSAL 1 -- AMENDMENT TO THE BYLAWS
TO ELIMINATE CUMULATIVE VOTING
California law generally requires cumulative voting in the election
of directors of a California corporation. See "Proposal 3 -- Election of
Directors" for a description of California cumulative voting procedures.
However, the Code specifically allows a company with its common stock quoted on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market System and with at least 800 shareholders of record to eliminate
cumulative voting by an amendment to its Bylaws or Articles of Incorporation.
The Company meets the latter requirements and thereby proposes an Amendment to
the Bylaws to eliminate cumulative voting. Under cumulative voting, in an
election of directors each share has a number of votes equal to the number of
directors to be elected and each shareholder may cast all of his or her votes
for a single candidate, or allocate them among as many candidates and in such
proportions as he or she chooses. As a result, a minority shareholder or
shareholders holding a significant percentage of outstanding shares may be able
to elect one or more directors.
6
<PAGE> 11
With cumulative voting, Board of Directors' representation might be
obtained by a corporation or group seeking to gain control of the Company or by
a faction unfriendly to Management and the majority of the Company's
shareholders. The Board of Directors believes that any such representation on
the Company's Board of Directors would be disruptive and could impair the
efficient operation of the Company. Accordingly, the Board of Directors proposes
that the second paragraph of Section 6 of Article II of the Bylaws be amended to
provide for voting by simple plurality in lieu of cumulative voting in the
elections of directors. Without cumulative voting, each share has one vote for
each open director position which can be voted only for such position. Without
cumulative voting, the holder or holders of a majority of the shares of the
Company's Common Stock voting at a shareholders' meeting will be able to elect
all directors of the Company then being elected. THIS AMENDMENT WOULD ELIMINATE
THE POSSIBILITY THAT THE HOLDERS OF A MINORITY OF THE SHARES VOTING AT SUCH A
MEETING (ACQUIRED THROUGH A PROXY CONTEST, TENDER OFFER OR OTHERWISE) MIGHT
ELECT ONE OR MORE DIRECTORS. It also could be argued that the elimination of
cumulative voting may deter takeover efforts on terms which some shareholders
might deem favorable. However, the absence of cumulative voting may shorten the
time required for a majority of the shareholders to elect an entirely new slate
of directors.
The Bylaws fix the number of directors to be within an authorized
range of from five to seven, with the exact number currently fixed at five.
Approval of a majority of the outstanding shares is required to change the range
of directors (which can not be more than twice the minimum less one and with the
minimum being not less than three) or to fix a specific number instead of a
range. Within a range, the Board of Directors can fix the exact number of
directors.
The Common Stock owned by The Powell Group as reflected in its
filings with the Securities and Exchange Commission is not sufficient to elect
any director with cumulative voting unless The Powell Group obtains proxies
representing substantial additional shares. Accordingly, the adoption of this
proposed Amendment will not affect the Powell Group's ability to elect a
director with its present holdings, but might affect its ability to elect one or
more directors by soliciting proxies. The Powell Group's original consent
solicitation proposals would have expanded the Board of Directors to seven
directors. If the Board of Directors were increased to seven members, the
Powell Group would need fewer proxies from other shareholders to elect a
director under cumulative voting.
The elimination of cumulative voting will also eliminate the current
ability of Gerald D. Murphy and Douglas A. Murphy to assure that one or both of
such persons are elected to the Board of Directors even if another person
acquires over 50% of the Common Stock. However, Management of the Company could
alone elect all the members of the Board of Directors without cumulative voting
if less than 74% of the shares were represented at a meeting. In any event,
even if 100% of the shares were represented at a meeting, without cumulative
voting, Management would currently only need proxies or votes from holders of
about 13% of the outstanding shares to assure election of the Board of
Directors' nominees, a feasible scenario in light of Management's control of the
Company's proxy materials and access to Company funds which may be required in
connection with any such solicitation. On the other hand, cumulative voting
provisions allow shareholders holding only 16.7% of the outstanding Common Stock
to elect one director to a five person Board of Directors. Without cumulative
voting, shareholders voting a majority of the outstanding Common Stock could
elect all of the Board of Directors, and other shareholders would NOT be able to
elect any directors.
The Amendment to the Bylaws also provides that in order to change,
amend or eliminate the Amendment, the approval of the holders of a majority of
the outstanding shares is required. This provision is necessary to prevent a
majority of the Board of Directors from changing, amending or eliminating the
Amendment. Under the Code, the Board of Directors can amend the Bylaws, unless
otherwise provided in the Articles of Incorporation or Bylaws or unless the
amendment relates to changing the range of authorized directors or a fixed
number of directors when a range is not provided for in the Bylaws. This
provision is intended to make the change, modification, or elimination of the
Amendment to require the same vote of shareholders as if the Amendment was added
to the Articles of Incorporation.
IF ADOPTED, THE AMENDMENT WOULD APPLY AT THIS ANNUAL MEETING TO THE
ELECTION OF DIRECTORS AND CUMULATIVE VOTING WOULD NOT BE AVAILABLE.
The affirmative vote of a majority of the outstanding shares of the
Company's outstanding Common Stock is required to approve the Amendment
eliminating cumulative voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE AMENDMENT TO THE BYLAWS TO ELIMINATE CUMULATIVE VOTING.
PROPOSAL 2 -- AMENDMENT TO ARTICLES OF INCORPORATION TO
ELIMINATE SHAREHOLDERS ACTION BY WRITTEN CONSENT
Under the Code, unless otherwise provided in the Articles of
Incorporation, any action required or permitted to be taken by shareholders of a
California corporation may be taken without a meeting, generally without prior
notice and without a shareholder vote, if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of shareholders at which all shares entitled to vote thereon
were present and voted. AFTER an action is taken by less than unanimous written
consent, prompt notice of such action must be given to those shareholders who
have not consented, but if the action relates to approving a transaction with an
insider, indemnification of management, a corporate reorganization or a plan of
distribution following a decision to liquidate, notice of the shareholders'
approval must be given to those non-consenting shareholders at least 10 days
before the action can take place. Further, California law provides that a
vacancy of a directorship caused by removal may be filed only by the unanimous
written consent of the shareholders, although directors may be removed by
written consent of a majority of the outstanding shares.
7
<PAGE> 12
This Amendment would eliminate the situation originally proposed by
the Powell Group whereby under California law the Board of Directors may be
removed by the written consent of holders of a majority of the outstanding
shares, but cannot be replaced by new directors except by unanimous written
consent or at a shareholders meeting. The Powell Group's original proposals
would have left the Company without a Board of Directors for a period of at
least 45 days. Further, under California law, officers of the Company can only
function under the supervision and control of a Board of Directors. Thus, under
the Powell Group's original proposals, the officers' ability to act would also
be impeded.
The Articles of Incorporation currently contain no provision
restricting or regulating shareholder action by written consent. This Amendment
to the Articles of Incorporation would eliminate the authority of shareholders
to act by written consent without a meeting, thus requiring all shareholder
action to be taken at a shareholder meeting. The Amendment would add Article
SIXTH of the Articles of Incorporation.
In the current business environment, efforts to take control of
public corporations are common and often result in a person or group acquiring a
majority, but not all, of the outstanding stock of a corporation. In that event,
under the Company's existing Articles of Incorporation, such a person or group
could seek shareholder action by written consent without a meeting. It is
possible that if a majority of shares are held by less than ten shareholders,
such shareholders would not have to send a proxy statement. However, in any such
action by written consent, the Company might have to send to the shareholders an
information statement before the action would be effected under the Federal
proxy rules. In such a case, a shareholder's only recourse would be to seek an
injunction to block such action.
The Board of Directors believes that the approval of Proposal 2 is
advantageous to the Company and its shareholders in many instances where
California law allows for corporate actions without notice to shareholders. For
instance, it is possible under California law for holders of a majority of the
outstanding shares to remove the entire Board of Directors without advance
notice to other shareholders. The provision of Proposal 2 prohibiting
shareholder action by written consent would give all shareholders of the
Company, entitled to vote on a particular matter, advance notice of and the
opportunity to participate in the determination of any proposed action on such
matter by requiring a shareholder meeting and the chance to take judicial or
other action to protect their interests.
In addition, the Board of Directors believes that elimination of
shareholder action by written consent is desirable to avoid untimely action in a
context that might not permit shareholders to have the full benefit of the
knowledge, advice and participation of the Company's Management and Board of
Directors.
The elimination of action by written consent may also deter
acquisitions of the Company's Common Stock and may delay, deter or impede
shareholder action not approved by the Board of Directors. Such actions may
include shareholder attempts to obtain control of the Board of Directors,
unsolicited tender offers or other efforts to acquire control of the Company.
Proposal 2 may impede or delay, at least until the next regularly scheduled
annual meeting or until a special meeting can be called and held, the initiation
or consummation of business transactions, such as reorganizations, mergers, or
recapitalization, which are opposed by the Board of Directors even though sought
by a majority of the shareholders. Elimination of action by written consent will
not affect the rights of shareholders holding at least 10% of the outstanding
shares to require that the Company call a special shareholder meeting.
IF THE AMENDMENT TO ELIMINATE SHAREHOLDERS ACTION BY WRITTEN CONSENT
IS ADOPTED, ANY ATTEMPT TO TAKE A SHAREHOLDERS ACTION BY WRITTEN CONSENT,
INCLUDING ANY WRITTEN CONSENTS WHICH MAY BE SOLICITED BY THE POWELL GROUP,
AFTER SUCH ADOPTION, WILL BE INVALID.
The affirmative vote of a majority of the outstanding shares of the
Company's outstanding Common Stock is required to approve the Amendment to
eliminate shareholder action by written consent.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE AMENDMENT TO ELIMINATE ACTION BY WRITTEN CONSENT.
PROPOSAL 3 - ELECTION OF DIRECTORS
Five directors are to be elected at the Annual Meeting to serve
until the next annual meeting and until their successors shall be elected and
qualified. Subject to certain exceptions specified below, if the Amendment to
eliminate cumulative voting is not adopted, shareholders of record on the Record
Date will be entitled to cumulate their votes in the election of the Company's
directors (i.e., they then would be entitled to the number of votes determined
by multiplying
8
<PAGE> 13
the number of shares held by them times the number of directors to be elected)
and may cast all of their votes so determined for one person, or spread their
votes among two or more persons as they see fit. If cumulative voting is
available, no shareholder shall be entitled to cumulate votes for a given
candidate for director unless such candidate's name has been placed in
nomination prior to the vote and the shareholder has given notice at the Annual
Meeting, prior to the voting, of the shareholder's intention to cumulate his or
her votes. If any one shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination. DISCRETIONARY AUTHORITY TO
CUMULATE VOTES IS HEREBY SOLICITED BY THE BOARD OF DIRECTORS IF CUMULATIVE
VOTING IS ALLOWED.
With respect to the election of directors, assuming a quorum is
present, the five candidates receiving the highest number of votes will be
elected. A quorum is the presence in person or by proxy of shares representing a
majority of the outstanding shares of the Common Stock.
NOMINEES FOR THE BOARD OF DIRECTORS
The names of the nominees and certain information about each of them
as of the Record Date are set forth below:
<TABLE>
<CAPTION>
Date elected
as director
Name of nominee Age of the Company
- --------------- --- --------------
<S> <C> <C>
GERALD D. MURPHY 69 April 1964
</TABLE>
Mr. Murphy has served as Chairman of the Board and Chief Executive Officer of
the Company since formation of the Company in 1964. He has served as Chairman of
the Board of American Rice, Inc. ("ARI")( which is 81% owned by the Company)
since 1993 and as a director of ARI since 1988. ARI is the largest U.S.-based
and one of the world's leading processors and marketers of branded rice products
and it is among the largest U.S. processors and sellers of branded black and
green olives. ARI's executive offices are located at 411 North Sam Houston
Parkway East, Suite 600, Houston, Texas 77060. He also serves as a director of
Pinkerton's, Inc., a security and investigation services firm.
<TABLE>
<S> <C> <C>
DOUGLAS A. MURPHY 41 January 1988
</TABLE>
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 ARI 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 ARI, from 1986 to
1990. He is also a director advisor of Compass Bank Houston.
<TABLE>
<S> <C> <C>
WILLIAM H. BURGESS 80 September 1975
</TABLE>
Mr. Burgess is a private business consultant, Chairman of CMS Digital, Inc., a
privately-held company, and has served as a director of ARI since
1988. From 1978 to 1986 Mr. Burgess was Chairman of International Controls
Corp., an internationally diversified manufacturing company listed on the New
York Stock Exchange.
<TABLE>
<S> <C> <C>
BILL J. MCFARLAND 60 August 1986
</TABLE>
Mr. McFarland has served as Vice President of the Company since 1975. He has
served as President of Comet American Marketing and Senior Vice President of ARI
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).
9
<PAGE> 14
<TABLE>
<S> <C> <C>
ALAN M. WIENER 59 March 1995
</TABLE>
Mr. Wiener has served as a director of the Company since 1995. He was President
of Impulse Designs, Inc. from 1974 to 1995. He is also a director of FloTool
International, Inc. He previously served as a director of Cal Fame Citrus
Products, Inc. and Leisure Technology, Inc.
Douglas A. Murphy is the son of Gerald D. Murphy. There are no other
family relationships among the directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF THE
NOMINEES LISTED ABOVE AS DIRECTORS.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has four committees with specific
responsibilities to support the operations of the full Board of Directors. These
are the Executive Committee, the Audit committee, the Compensation 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 of Directors in the management of the
business, except that the Executive Committee is not to take any actions which
could await actions by the Board of Directors, 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 Company. Gerald D.
Murphy serves as Chairman of the Executive Committee and Douglas A. Murphy and
William H. Burgess are Executive Committee members.
The Audit Committee meets with the Company's independent certified
public accountants and reviews the scope and results of the annual audit. Alan
M. Wiener is Chairman of the Audit Committee and William H. Burgess and Bill J.
McFarland are members of the Audit Committee.
The Compensation Committee recommends to the Board of Directors
proposed compensation programs for all principal officers of the Company.
William H. Burgess is Chairman of the Compensation Committee and Gerald D.
Murphy and Alan M. Wiener are Compensation Committee members.
The Profit Sharing Plan Committee recommends to the Board of
Directors proposed contributions by the Company to the Company's Employees
Profit Sharing Retirement Plan. Gerald D. Murphy is Chairman of the Profit
Sharing Plan Committee and Bill J. McFarland is a member.
During the fiscal year ended March 31, 1997, the full Board of
Directors held five meetings; the Executive Committee took one action by written
consent; the Audit Committee met three times; the Compensation Committee met one
time; 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.
10
<PAGE> 15
THE POWELL GROUP'S SOLICITATION
The Powell Group includes Noble Trenham, his broker/dealer firm,
First Global Securities, Inc., Nanette Kelley, her private holding company, The
Powell Group, and its subsidiary, Farmers Rice Milling Company, Inc.
Mr. Trenham and his firm own only twelve shares of stock of the
Company. If The Powell Group succeeds in taking control of the Board of
Directors of the Company, Mr. Trenham's firm will receive a fee of $505,000 plus
expenses from Ms. Kelley's company, for which she will then force YOUR Company
to reimburse HER company.
This is not the first time that Mr. Trenham has initiated an
effort to take control of the Company. In 1989, he and two other individuals
(one of whom was subsequently indicted and pleaded guilty to federal felony
charges of fraud, conspiracy and misapplication of funds stemming from the
collapse of a large financial institution), with collective shareholdings of
less than 5%, planned, but quickly abandoned, a proxy contest for election of
directors of the Company. The Company is also not the only publicly-held company
that Mr. Trenham has attempted--unsuccessfully--to take over. In 1987, Mr.
Trenham was sued by the United States Securities and Exchange Commission ("SEC")
and was permanently enjoined by the United States District Court from violating
federal securities laws as a result of improper actions relating to at least
eight other publicly-held companies.
Ms. Kelley and her company own only 3.6% of the outstanding
shares of the Company--which they bought just a few months ago at a price well
below the current market price, in a private transaction arranged by Mr.
Trenham, whose firm was then hired for a fee of over half a million dollars to
help her take control of the Company. Ms. Kelley, who is 38 years old,
inherited her family-owned company following the death of her father a few years
ago. She has never run a large, diversified, international agribusiness like the
Company. By comparison, the current Management of your Company which she seeks
to remove have an aggregate of over 230 years of experience in the food
business.
On July 17, 1997, without any warning, Ms. Kelley confronted
Gerald Murphy, the chief executive officer of the Company, with her demand to
take control of the Board of Directors of the Company. She misrepresented that
she controlled the vote of 51% of the outstanding shares of the Company when, in
fact, she and her affiliates actually controlled a small minority of the
outstanding shares. She stated that Mr. Murphy had less than 24 hours to accede
to her demand for control of the Board of Directors or she would initiate a
solicitation of written consents of shareholders for removal of all of the
directors of the Company. She offered to help Mr. Murphy and his son sell their
shares of stock of the Company and to continue as directors and consultants of
the Company for a period of time. She did not offer to buy the Murphys' shares
and they did not offer to sell them. Mr. Murphy did, however, tell Ms. Kelley
that, if she wanted to buy the Company at a price much higher than the current
market price, that proposal would have to be seriously considered by the Board
of Directors of the Company. She has made no such offer.
A week after Ms. Kelley's demands for control of the Company were
rejected, The Powell Group filed documents with the SEC indicating that they
intended to solicit written consents from shareholders of the Company to remove
all of the directors of the Company, call a special meeting of shareholders for
election of new directors, amend the Bylaws of the Company to increase the
number of directors from five to seven, and
11
<PAGE> 16
prohibit the Management of the Company from taking certain actions between the
proposed removal of directors and special meeting of shareholders. In
furtherance of The Powell Group's efforts to gain control of the Company and to
discredit current Management, Ms. Kelley and her company also filed a
shareholder derivative suit against Gerald and Douglas Murphy, the chief
executive officer and president of the Company, respectively. Ms. Kelley is now
resisting efforts of the Murphys' counsel to take her deposition in that suit
based on her counsel's claim that she does not know anything about the claims in
the suit, despite the fact that she personally verified in writing that her
allegations in the complaint which initiated the suit were true and correct.
The Management of the Company attempted to dissuade The Powell
Group from taking such drastic action right after the events of July 17 and 18.
The Powell Group was promptly advised that the annual meeting of shareholders of
the Company would be held in the near future at the usual time of year, that The
Powell Group would have an opportunity to solicit proxies for election of its
own slate of directors at that meeting if that is what they wished to do, and
that it was not necessary--or even feasible--to remove the entire Board of
Directors without replacing them at the same time at a shareholders meeting.
Nevertheless, The Powell Group filed paperwork with the SEC pointing toward an
attempt to remove all of the directors by written consent without concurrent
election of new directors at a meeting of shareholders. The Powell Group have
apparently since come to the realization that removal of directors by written
consent is either not feasible or is totally unnecessary and now intend to
solicit proxies for election of their own slate of directors at the Annual
Meeting without first soliciting written consents for removal of directors.
Your Management respects your right to vote your shares as you
see fit. We also respect the right of The Powell Group or any other shareholder
to solicit proxies for election of directors who are not recommended by the
Board of Directors, provided that it is done fairly and honestly. All we ask is
that you listen to both sides and carefully weigh your choices before deciding.
Your Management hopes that you will not give your proxy to The
Powell Group or vote for any of their director nominees. We do not believe that
it would be in your best interest to turn control of the Company over to Ms.
Kelley, Mr. Trenham, and their associates. We also do not believe that it would
be in your best interest to elect any of their nominees to serve as a director
of the Company in light of the hostility they have demonstrated toward the
current Management of the Company and the deliberate misrepresentations they
have made. That is why the Board of Directors has voted to eliminate cumulative
voting for election of directors, so that the Board of Directors will not be
hampered by divisiveness as a result of election of one or more hostile
directors by The Powell Group based on proxies from a minority of shareholders.
In making your decision on supporting your current Management or
The Powell Group, we hope that you will give careful consideration to the
following:
1. The Powell Group have said they intend to install Ms. Kelley
as chief executive officer and John Spain (one of Ms. Kelley's employees) as
managing director of the Company if they win control. Until two years ago, Mr.
Spain was manager of a television station in Baton Rouge, Louisiana. He has
never run a company like the Company. Ms. Kelley, who is 38 years old, inherited
her family-owned company following the death of her father a few years ago. She
also has never run a company like the Company. By comparison, your Management
has an aggregate of over 230 years of experience in the food business.
2. The Powell Group have said they will relocate the Company's
rice business from Houston, Texas, and its corporate headquarters from Los
Angeles, California, to Baton Rouge Louisiana, Ms. Kelley's home town. The
success of the Company, like that of all businesses, is totally dependent on the
skill, experience, and dedication of its people and the relations of its people
with customers and suppliers. The actions The Powell Group intend to take if
they win control of the
12
<PAGE> 17
Company will result in the loss of a number of loyal employees who are vital to
the Company's operations. Ms. Kelley has also misrepresented the facts regarding
the Company's headquarters in Los Angeles by claiming that the Company spends
$1,000,000 a year "to rent a penthouse on Wilshire Boulevard." The fact is that
the Company occupies approximately 11,000 square feet of typical corporate
office space in an office building in Los Angeles for annual rent of
approximately $300,000.
3. The Company's subsidiary, ARI, has outstanding $99,000,000 of
mortgage notes (the "Notes") the holders of which can demand immediate payment
in the event of a change in control of the Company and ARI. The Powell Group
have claimed that they might be able to refinance the Notes at a lower interest
rate but they have not explained how that would be possible since the Notes are
not currently redeemable and are redeemable in the future at a very substantial
premium over par. Management does not believe that it is currently feasible to
pay off or refinance the Notes. Management believes that a change in control of
the Company resulting in an acceleration of the Notes would force the Company
and ARI into bankruptcy.
4. For the five fiscal years ended March 31, 1997, the Company's
stock outperformed the average return for Nasdaq (U.S. companies) approximately
50% and the average return for S&P Food Products Index by over 62%. For further
information regarding the performance of the Company's common stock, see "Stock
Price Performance."
5. The Powell Group have said that Farmers Rice Milling Company,
Inc. is not a competitor of ARI since it buys its rice in Louisiana and ARI is
located 300 miles away. That is just not true. ARI buys more than one million
cwt of rice per year in Louisiana and competes with Farmers Rice for the
purchase of rice from the same farmers. Farmers Rice also supplies one of ARI's
competitors in Haiti.
6. The Powell Group have said they expect to spend $750,000 in
connection with their takeover attempt and, if they win control of the Company,
will have the Company reimburse them for their expenditures without even asking
for shareholder approval. Most of that money, $505,000 plus expenses, will go to
Mr. Trenham's firm. The Company cannot afford that expenditure, not to mention
the impact that payment would have on earnings and stock value.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS DO NOT
EXECUTE PROXIES OR CONSENTS PROVIDED BY THE POWELL GROUP AND THAT THE
SHAREHOLDERS EXECUTE PROXIES SOLICITED BY THE MANAGEMENT OF THE COMPANY.
On July 24, 1997, Farmers Rice filed a shareholder derivative
complaint purportedly on behalf of the Company and ARI against Gerald D. Murphy,
Douglas A. Murphy, the Company and ARI in the United Stated District Court,
Central District of California. In the complaint, Farmers Rice alleges (1)
breach of fiduciary duty, (2) waste of corporate assets and (3) illegal
corporate loan. The derivative complaint further requests injunctive relief
prohibiting the Company and ARI from making allegedly ongoing litigation defense
payments on behalf of Gerald D. Murphy and Douglas A. Murphy and requiring
ongoing indemnification by such individuals to the Company and ARI. Both the
Company and ARI are nominal defendants with the lawsuit being brought on behalf
of the Company and ARI against Gerald D. Murphy and Douglas A. Murphy. The
complaint principally challenges certain litigation expenditures incurred by the
Company in connection with litigation to which the Company, ARI, Gerald D.
Murphy and Douglas A. Murphy are parties. While the complaint alleges that such
expenditures were improperly incurred, in fact, all expenditures and the
involvement of the Company in the underlying litigation were fully authorized by
the Company's Board of Directors. The Company and ARI have filed a motion to
dismiss the derivative action on the ground that the plaintiffs failed to make a
demand on the Board of Directors of the Company, and ARI to take action with
respect to the alleged wrongdoings prior to filing suit. That motion is set for
hearing on September 25, 1997. Gerald D. Murphy and Douglas A. Murphy believe
they have valid defenses against the allegations in the complaint and that the
complaint's sole purpose is tactical, namely, to attempt to malign current
Management as part of the Powell Group's renewed effort to take control of the
Company for its own benefit. See "Compensation Committee Interlocks and Insider
Participation-Litigation".
On August 13, 1997, Farmers Rice and Ms. Kelley filed a petition
for writ of mandate in California Supreme Court seeking an order allowing them
to inspect the books and records of the Company under the Code. The Company
believes that Farmers Rice and Ms. Kelley are seeking such inspection for
improper purposes and intends to defend the petition on that basis. A hearing
is currently scheduled for September 17, 1997.
On August 20, 1997, Farmer's Rice filed a Petition for Writ of
Mandate in California Superior Court, an Order requiring the Company to supply
it with a list of non-objecting beneficial shareholders ("NOBOS") and a copy of
the Depository Trust Company's securityholders' position list (the "DTC"), and
to delay the Annual Meeting until it receives such lists. The lawsuit has been
settled by the Company agreeing to supply the lists to the Powell Group and the
Powell Group agreeing to the confidentiality provisions for such lists
substantially as set forth in Securities and Exchange Commission Rule 14a-7.
PARTICIPANTS IN THE SOLICITATION
Under applicable regulations of the Securities and Exchange
Commission, each of the directors and nominees of the Company is deemed to be a
"participant" in the Company's solicitation of proxies, as well as the Company.
The following sets forth certain additional information regarding the Company's
nominees and directors.
13
<PAGE> 18
TRANSACTIONS IN THE COMPANY'S SECURITIES IN THE LAST TWO YEARS.
Listed below are the only purchases and sales of Company stock
within the past two years by the Company, the Company's directors and nominees
and certain information concerning such transactions.
A. Purchases and Sales of Common Stock
<TABLE>
<CAPTION>
Number of Shares
Name Purchased (Sold) Date of Transaction(s)
- ----------------------- ---------------- ----------------------
<S> <C> <C>
ERLY Industries Inc. 512,314 October 1995 (1)
430,417 October 1996 (1)
25,030 Various (2)
351,773 July 24, 1997 (4)
33,949 Various (3)
104,582 Various (5)
Gerald D. Murphy 3,857 April 16, 1995 (3)
(10,000) May 26, 1995
(5,000) June 14, 1995
(333,333) January 6, 1997 (6)
10,000 June 1, 1997 (3)
1,700 August 8, 1997 (3)
Douglas A. Murphy 3,256 April 16, 1995
(500) January 9, 1996
(500) January 15, 1996
(1,000) January 24, 1996
(1,000) March 15, 1996
(500) March 18, 1996
(1,000) April 11, 1996
(1,000) April 12, 1996
(1,000) April 17, 1996
(5,000) May 3, 1996
(5,000) May 16, 1996
(5,000) May 23, 1996
(2,000) June 4, 1996
(5,360) June 11, 1996
10,000 June 1, 1997 (3)
351,773 July 24, 1997 (4)
23,175 August 5, 1997 (5)
1,300 August 8, 1997 (3)
34,906 August 20, 1997 (5)
</TABLE>
14
<PAGE> 19
<TABLE>
<S> <C> <C>
William H. Burgess (40,000) March 20, 1996
(11,000) May 21, 1996 (7)
(10,000) June 26, 1996
(1,000) June 27, 1996
(5,000) July 10, 1996
(3,000) February 7, 1997
(2,000) February 12, 1997
(1,000) February 13, 1997
(2,000) February 14, 1997
(2,000) February 18, 1997
(3,000) February 24, 1997
(4,000) March 12, 1997
(1,000) March 13, 1997
(15,000) March 20, 1997
(2,560) March 26, 1997
(10,000) May 7, 1997
(10,000) May 9, 1997
(5,000) July 9, 1997
(13,735) July 10, 1997
(250) August 19, 1997
(5,000) August 21, 1997
(2,000) August 22, 1997
Bill J. McFarland 1,260 April 16, 1995 (3)
1,069 August 8, 1997 (3)
22,765 August 20, 1997 (5)
Al Wiener 1,147 September 6, 1996
1,235 January 21, 1997
1,513 July 1, 1997
</TABLE>
- ----------
(1) Stock dividend.
(2) Miscellaneous stock issuances.
(3) Stock bonuses.
(4) Shares issued upon conversion of convertible promissory note.
(5) Shares issued upon exercise of options.
(6) Involuntarily transferred in connection with a lawsuit. See
"Compensation Committee Participation and Insider Participation-
Litigation."
(7) Gift
B. Purchase and Sale of Other Securities.
See "Compensation Committee Interlocks and Insider
Participation-Certain Transactions."
COMMON STOCK OF THE COMPANY OWNED BY ANY ASSOCIATES OF THE DIRECTORS OR NOMINEES
Name Address Associate of Number of Shares
-------------- --------------- ------------------ ----------------
Wells Fargo Bank, Pasadena, CA 91105 William H. Burgess 63,553
as Trustee for
grandchildrens'
trusts
15
<PAGE> 20
SECURITIES OWNED BY ERLY INDUSTRIES INC.
Gerald D. Murphy, Douglas Murphy and William H. Burgess may be
deemed to be the beneficial owners of any shares of American Rice, Inc.'s Common
Stock (35,777,778 shares), Series A Preferred Stock (3,888,889 shares) and
Series B Preferred Stock (14,000,000 shares) held by the Company as a result of
their positions with the Company and their stock ownership of the Company.
CERTAIN INFORMATION
Except as disclosed elsewhere in this Proxy Statement, to the
knowledge of the Company none of the Company's directors and nominees: (i) owns
of record any securities of the Company that are not also beneficially owned by
them; (ii) is, or was within the past year, a party to any contract,
arrangements or understandings with any person with respect to the securities of
the Company, including, but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of proxies; (iii)
has any substantial interest, direct or indirect, by security holdings or
otherwise, in any matter to be acted upon at the Annual Meeting; (iv)
beneficially owns any securities of any parent or subsidiary of the Company; or
(v) borrowed any funds to purchase any securities set forth under "Participants
in the Solicitation." Except as disclosed elsewhere in this Proxy Statement, to
the knowledge of the Company none of the Company's directors or nominees nor any
of their associates has any arrangement or understanding with any person with
respect to future employment by the Company or its affiliates or with respect to
any future transactions to which the Company or any of its affiliates will or
may be a party, nor any material interest, direct or indirect, in any
transaction which has occurred since April 1, 1996 or any currently proposed
transaction, or series of similar transactions, to which the Company or any of
its affiliates was or is to be a party and in which the amount involved exceeds
$60,000.
METHOD AND COST OF SOLICITATION
In addition to the solicitation of proxies by use of the mails,
proxies may also be solicited by the Company and its directors, officers and
management-level employees (who will receive no compensation therefor in
addition to their regular salaries and fees) by telephone, telegram, facsimile
transmission and other electronic communication methods or personal contact. The
Company will reimburse banks and brokers who hold shares of the Company's Common
Stock in their name or custody, or in the name of nominees for others, for their
out-of-pocket expenses incurred in forwarding copies of the proxy materials to
those persons for whom they hold such shares.
The Company has retained MacKenzie Partners, Inc. ("MacKenzie") to
assist in the solicitation of proxies. Pursuant to the Company's agreement with
MacKenzie, it will provide various proxy advisory and solicitation services for
the Company at a cost of approximately $20,000, plus reasonable out-of-pocket
expenses and indemnification against certain liabilities. It is expected that
MacKenzie will use up to approximately 15 persons in such solicitation.
Although no precise estimate can be made at this time, the Company
anticipates that the aggregate amount to be spent by the Company in connection
with the solicitation of proxies by the Company will be approximately $200,000,
of which approximately $100,000 has been incurred to date. This amount includes
legal fees, printing costs and the fees payable to MacKenzie, but excludes (i)
the salaries and fees of officers, directors, and employees of the Company and
(ii) the normal expenses of an uncontested election. The aggregate amount to be
spent will vary depending on, among other things, any developments that may
occur in the proxy (consent) contest discussed herein.
16
<PAGE> 21
EXECUTIVE COMPENSATION
The following table sets forth information for each of the three
fiscal years ended March 31, 1997 for the Chief Executive Officer of the Company
and the four other most highly compensated executive officers of the Company and
its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
---------------------------------- ----------------------
Awards
-----------------------
Fiscal Other Securities
Year Annual Restricted Underlying All Other
Name and ended Compen- Stock Options/ Compen-
Principal Position March 31 Salary($) Bonus($) sation($) Awards($) SARS(#) sation($)
- ------------------ -------- --------- -------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) (2) (3)
Gerald D. Murphy 1997 $336,000 $101,535 $ 7,542 $ 99,525 $ -- $ 6,000
Chairman of the Board and 1996 325,000 100,000 6,630 -- -- 5,609
Chief Executive Officer of 1995 310,000 120,160 7,233 43,774 -- 9,060
ERLY Industries Inc.
Chairman of the Board of
American Rice, Inc.
Douglas A. Murphy 1997 259,000 88,665 6,784 93,225 -- 6,000
President and Chief Operating 1996 250,000 100,000 5,000 -- -- 5,319
Officer of ERLY Industries Inc. 1995 230,000 93,280 5,791 36,858 -- 8,914
President and Chief Executive
Officer of American Rice, Inc.
Bill J. McFarland 1997 210,000 29,325 3,893 7,425 -- 6,000
Vice President of ERLY 1996 204,000 -- 5,555 -- -- 4,002
Industries Inc. 1995 198,000 55,400 4,075 14,263 -- 7,500
Senior Vice President of
American Rice, Inc.
Thurston F. Teele 1997 206,000 85,000 10,852 -- -- 6,000
President of Chemonics 1996 200,000 253,000 5,058 -- -- 7,500
Industries, Inc. 1995 183,600 364,000 1,640 -- -- 7,500
Richard N. McCombs 1997 180,000 -- 2,759 -- -- 6,000
Vice President and Chief Financial 1996 175,000 15,000 435 -- 88,550 3,392
Officer of ERLY Industries Inc. 1995 170,000 28,560 2,418 7,347 -- 8,106
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.
(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, 1997, was as follows: Gerald D. Murphy, 11,700 shares ($99,525);
Douglas A. Murphy, 11,300 shares ($93,225); Bill J. McFarland, 900
shares ($7,425); Thurston F. Teele, none; and, Richard N. McCombs,
none. Such shares are restricted for a one-year period from the date
of issuance. Although no cash dividends have ever been paid on the
Company's Common Stock, dividends, if any, would be paid on
restricted stock at the times and in the same amounts as dividends
paid to all shareholders.
(3) Amounts represent Company contributions to the Company's Employees
Profit Sharing Retirement Plan.
17
<PAGE> 22
The following table presents information on stock options held by
the executive officers named in the Summary Compensation Table at the end of
fiscal 1997.
AGGREGATED OPTION EXERCISES (1) IN FISCAL YEAR 1997
AND MARCH 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
Number of securities Value of unexercised
underlying unexercised in-the-money
options at options at
March 31, 1997 (#) March 31, 1997($) (2)
------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gerald D. Murphy -- -- -- --
Douglas A. Murphy 84,186 -- $394,832 --
Bill J. McFarland 33,674 -- $157,931 --
Thurston F. Teele -- -- -- --
Richard N. McCombs 88,550 -- $327,635 --
</TABLE>
(1) No options were exercised in fiscal 1997 and no stock appreciation
rights have been granted.
(2) Market value of underlying securities at March 31, 1997 ($8.25 per
share) less the exercise price. The values in the last two columns
have not been, and may never be, realized by the officers. Actual
gains, if any, on option exercises will depend on the value of the
Company's Common Stock on the date of the exercise.
EMPLOYMENT CONTRACTS
In June 1997, the Board of Directors of ARI approved an employment
agreement with Gerald D. Murphy which provides that, as an employee, he shall be
entitled to certain benefits for a five-year term commencing (i) on the date of
termination, if termination is by notice of ARI and there has been no Change of
Control (as defined below), (ii) on the occurrence of a Benefits Event (as
defined below) following a Change of Control, if termination is at the option of
Mr. Murphy or (iii) on the occurrence of the last Change of Control preceding
the date of termination, if termination is by notice of ARI. Under the terms of
the employment agreement, such benefits are provided unless termination is both,
at the option of Mr. Murphy and in the absence of a Change of Control. A Change
of Control is deemed to occur if (i) any person becomes beneficial owner of 25%
or more of the voting power of ARI (other than the Company) or the Company or
(ii) during any consecutive years, the individuals comprising a majority of the
Board of Directors of ARI or the Company at the beginning of such period shall
cease to constitute a majority. A Benefits Event, includes but is not limited to
a change in compensation of, responsibilities of or positions held by Mr. Murphy
without his consent.
Generally, benefits payable under the employment agreement include:
continuation of Mr. Murphy's base salary (currently $350,000), continuation of
Mr. Murphy's participation in profit sharing, pension and other executive
compensations plans, and various health care and disability plans, the right to
a cash bonus in the amount of the bonus last received if ARI awards a cash bonus
to any member of the Executive Group (generally defined as the executive
officers of ARI) during such five-year period, and indemnification for
judgments, fines and expenses incurred by Mr. Murphy by reason of his serving as
an officer. In consideration of these benefits, Mr. Murphy has agreed not to
compete with ARI or to disclose any confidential information of ARI during the
five-year period during which he is to receive such benefits. If ARI or its
successor fails to make timely payments as required by the employment agreement,
liquidated damages are set at treble the amount of such untimely payments.
Certain amounts that may be paid under the employment agreement upon Mr.
Murphy's termination may be deemed to be "excess parachute payments" within the
18
<PAGE> 23
meaning of Section 2800 of the Internal Revenue Code and, as such, would not be
deductible by ARI for federal income tax purposes.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not officers of the
Company receive compensation of $2,000 per quarter plus a fee of $1,500 for each
meeting attended in person or by telephone. In addition, in fiscal 1997, William
H. Burgess received fees of $22,500 for public relations services provided to
the Company. The Company also pays for outside Board of Directors' members to
participate in the Company's group insurance plan for medical benefits.
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 William H. Burgess, Chairman, Gerald D. Murphy and Alan M. Wiener. Mr.
Burgess is a private business consultant, Chairman of CMS Digital, Inc. and a
Director of American Rice, Inc. ("ARI"). He is the beneficial owner of 3.9% of
the Company's Common Stock. Mr. Murphy is Chairman and Chief Executive Officer
of the Company and is the beneficial owner of 30.0% of the Company's Common
Stock. He is also Chairman of the Board of ARI. Mr. Wiener is retired and owns
less than 1% of the Company's Common Stock.
All decisions by the Compensation Committee were reviewed and
approved without change, by the full Board of Directors of the Company.
Committee members William H. Burgess and Alan M. Wiener were responsible for the
determination of Gerald 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 ARI, an 81% owned
subsidiary of the Company. Both serve on the Compensation Committee of the Board
of Directors of ARI, with Mr. Murphy as Chairman of the Committee. The Board of
Directors of ARI recently approved an employment agreement with Gerald D.
Murphy, with Mr. Murphy not participating in the decision. See "Executive
Compensation -- Employment Contracts."
Gerald D. Murphy, Douglas A. Murphy and William H. Burgess also
serve as directors of ARI. Douglas A. Murphy is also President of the Company
and President and Chief Executive Officer of ARI. Bill J. McFarland, a director
and Vice President of the Company, is a Senior Vice President of ARI. In
addition, Richard N. McCombs, Vice President and Chief Financial Officer of the
Company, is a director and Executive Vice President of ARI.
CERTAIN TRANSACTIONS
At March 31, 1997, the Company had a $1,000,000 convertible
promissory note payable to Douglas A. Murphy, President of the Company, which
arose in April 1992. The note was convertible at any time into the Company's
Common Stock at a conversion price of $2.95 per share, the average market price
of the Company's Common Stock for the seven trading days immediately prior to
the April 1, 1993 renewal of the note (as adjusted for stock dividends issued
through September 1996). The note was renewed on an annual basis each year and
on April 1, 1997, Mr. Murphy again renewed the note. The new note had an
interest rate of prime plus 2%, and was due in full on April 1, 1998. In July
1997, Mr. Murphy converted the entire note into 351,773 shares of the Company's
Common Stock in accordance with the conversion provisions of the note.
In 1996 ARI's lease for its office space in Houston, Texas expired.
In reviewing its alternatives, ARI located a building suitable for such office
space which was available for purchase. After careful consideration, ARI's Board
of Directors determined that the purchase of this building would not be in ARI's
best interest and that a leasing arrangement would be more appropriate for ARI.
Gerald D. and Douglas A. Murphy then arranged for the purchase of the building
19
<PAGE> 24
by a limited partnership owned by them. The limited partnership negotiated a
7-year leasing agreement with ARI for office space in October 1996. ARI's
negotiations with the limited partnership were on an arms-length basis and ARI
believes that the rental rates being paid by it are comparable to, if not better
than rates for similar office space in such area.
ARI's annual lease expense for such facility ranges from
approximately $600,000 in the first year to approximately $740,000 in the
seventh year. In connection with the lease, ARI performs building management
services in exchange for certain reductions in the lease cost. At June 30, 1997,
ARI had an account receivable of $101,639 related to amounts paid on behalf of
the limited partnership.
During the fiscal year ended March 31, 1997, Gerald D. Murphy
received officer advances of $85,000 from ARI, which was the largest aggregate
amount of indebtedness outstanding to ARI at any time during the fiscal year.
The amount outstanding at July 31, 1997, was $44,192. There was no interest
charged on such advances.
LITIGATION
In April 1995, a lawsuit was filed in the district court of Harris
County, Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc., as
plaintiffs against Gerald D. Murphy and Douglas A. Murphy. The Company and ARI
were named as defendants in the lawsuit by amendment to the original petition in
September 1995. This lawsuit is a dispute between the general partner of a
proposed real estate development and Gerald D. Murphy and Douglas A. Murphy over
their contractual obligations, if any, to the partnership. Damages sought are in
the range of $15,000,000, plus attorneys' fees and punitive damages. The Company
and ARI were named as defendants in the lawsuit allegedly because of their
efforts to obtain restraining orders to prevent threatened foreclosures on the
Company's Common Stock pledged as collateral by Gerald D. Murphy. Further, both
sought to stop interference by the plaintiffs in the lawsuit with ARI's Note
financing. The lawsuit also alleges certain other activities by the Company and
ARI, including knowing participation in breaches of fiduciary duties, civil
conspiracy with Gerald D. Murphy and Douglas A. Murphy and conversion. The
plaintiffs recently added a reverse alter ego claim. A restraining order was
issued preventing foreclosure on the shares pledged by Mr. Murphy but such
restraining order was subsequently terminated. The plaintiffs then obtained
333,333 shares of the pledged stock which was thereafter sold in part to Farmers
Rice and Ms. Kelley. The Company and ARI believe they have valid defenses in
this case and that damages, if any, will not have a material effect on the
Company's financial position or results of operations. However, as with any
litigation, the ultimate outcome is unknown. In order to minimize legal
expenses, the Company, ARI, Gerald D. Murphy and Douglas A. Murphy are using
common legal counsel in this matter and have agreed to share legal expenses with
the Company bearing 50% of such expenses after any insurance recoveries. This
matter is currently in trial before a jury in Houston, Texas.
On July 24, 1997, Farmers Rice filed a shareholder derivative
complaint purportedly on behalf of the Company and ARI against Gerald D. Murphy,
Douglas A. Murphy, the Company and ARI in the United States District Court,
Central District of California. In the complaint, Farmers Rice alleges (1)
breach of fiduciary duty, (2) waste of corporate assets and (3) illegal
corporate loan. The derivative complaint further requests injunctive relief
prohibiting the Company and ARI from making allegedly ongoing litigation defense
payments on behalf of Gerald D. Murphy and Douglas A. Murphy and requiring
ongoing indemnification by such individuals to the Company and ARI. Both the
Company and ARI are nominal defendants with the lawsuit being brought on behalf
of the Company and ARI against Gerald D. Murphy and Douglas A. Murphy. The
complaint principally challenges certain litigation expenditures incurred by the
Company in connection with litigation to which the Company, ARI, Gerald D.
Murphy and Douglas A. Murphy are parties, which is described in the immediately
preceding paragraph. While the complaint alleges that such expenditures were
improperly incurred, in fact, all expenditures and the involvement of the
Company in the underlying litigation were fully authorized by the Company's
Board of Directors. However, the business judgment of the Board of Directors in
making such decision could be reviewed by a court in a lawsuit. The Company and
ARI have filed a motion to dismiss the derivative action on the ground that the
plaintiffs failed to make a demand on the Board of Directors of the Company and
ARI to take action with respect to the alleged wrongdoing prior to filing suit.
That motion is set for hearing on September 22, 1997. Gerald D. Murphy and
Douglas A. Murphy believe they have valid defenses against the allegations in
the complaint and that the complaint's sole purpose is tactical, namely, to
attempt to malign current Management as part of the Powell Group's effort to
take control of the Company for its own benefit.
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 Compensation
Committee reviews and sets the compensation levels of members of Management. It
is also responsible for the administration of the
20
<PAGE> 25
Company's various compensation plans, except the Company's Employees Profit
Sharing and Retirement Plan which is administered by the Profit Sharing and
Retirement Plan Committee, and other benefits provided to executives.
BASE SALARY LEVELS
Base salary levels for the Company's executive officers increased by
approximately 3.2% from fiscal year 1996 to 1997. Historically, the compensation
of the executive officers of the Company, including the Chief Executive Officer,
has not been formally set by the Compensation 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, and the fiscal year
1996 performance of the Company and the subsidiary or division to which the
executive is assigned. In reviewing compensation, the Compensation Committee
considered the salary and bonus paid by other entities as compared to the
salaries and bonuses paid by the Company. In determining compensation, the
Compensation Committee also reviewed a formal survey of compensation of top and
midlevel managers at food and kindred products companies. The Compensation
Committee only reviewed the combined salary and bonuses of companies in such
survey which had sales comparable to the Company. The Compensation Committee
believes that the Company's compensation of salary and bonuses is approximately
in the mid-range of the companies used in its comparisons. The companies used
for such comparisons are not the same as are in the Indexes used in "Stock Price
Performance." When considering executive compensation for fiscal 1997, the
Compensation Committee considered various contributions in fiscal 1996,
including: (1) the continued improvement in the Company's financial position
(stockholders' equity increased by $735,000 to $17,500,00 at March 31, 1996;
working capital was $58,100,000 at March 31, 1996 compared to $15,900,000 at
March 31, 1995), (2) sales increased 6% from $460,000,000 in 1995 to
$487,000,000 in 1996, (3) the successful completion of a $100,000,000 Mortgage
Notes public offering by ARI, and (4) a new $20,000,000 line of credit was
obtained for Chemonics Industries, Inc.
All of the subjective factors were considered by the Compensation
Committee, and it is not reasonably possible to assign relative significance to
these factors on an individual basis.
The Compensation Committee occasionally grants stock options based
on a given event or circumstances, such as an overseas assignment, and does not
generally consider any option previously granted to an executive officer. The
grant of an option is generally intended to encourage equity ownership in the
Company and to provide long-term performance-based compensation to officers and
key employees.
BONUSES
In fiscal 1995, ARI's shareholders and Board of Directors adopted 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 ARI's 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 one year following issuance. The Incentive Plan is not subject
to any provisions of ERISA.
The Company's subsidiary, Chemonics Industries, Inc., has a bonus
plan covering certain executives, including the President of the subsidiary,
Thurston F. Teele, who is listed in the Summary Compensation Table. 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 the Company's executive compensation program covering
corporate and divisional executives other than ARI personnel and Chemonics
Industries personnel (who are covered by the 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 bonuses
were awarded to executive officers in 1997 to acknowledge various contributions
in fiscal 1997, including: (1) the improvement in the Company's operating
results; the Company recorded net income of $7,200,000 million for fiscal year
1997 and stockholders' equity increased to $24,800,000 at March 31, 1997; and,
sales increased 26% from $487,000,000 in 1996 to $614,000,000 in 1997, and (2)
the successful acquisition and integration of the olive business.
21
<PAGE> 26
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 Company's 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 1997 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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER IN 1997
In considering the amount of compensation for fiscal year 1997 for
Mr. Gerald D. Murphy, Chief Executive Officer, the Compensation Committee
(excluding Gerald D. Murphy) and the Board of Directors considered the improved
financial results reported by the Company in 1997 and 1996 as described above,
and contributions made by Mr. Murphy to enhance the long-term growth of the
Company which included: the acquisition of the Early California Foods olive
business from the Campbell Soup Company in fiscal 1997, the significant export
sales of rice to the Far East in fiscal 1995 and 1996; the establishment of a
joint venture for rice operations in Vietnam; and, the coordination of other
potential export opportunities, especially in the Middle East.
As with the Company's other executives, Gerald D. Murphy's 1997
salary was based on the various subjective factors detailed under the caption
"Base Salary Levels" above. Mr. Murphy's base salary increased from $325,000 in
1996 to $336,000 in 1997, a 3.4% increase. Mr. Murphy also received a cash bonus
of $101,535 and a stock bonus of $99,525 for 1997. These bonuses were paid in
recognition of the favorable financial results recorded by the Company's
operating entities, ARI, Chemonics International and Fire-Trol, in fiscal year
1997, and the successful acquisition and integration of the Early California
Olive division during the year.
TAX LIMITATIONS
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 $1,000,000. 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. However, see "Executive
Compensation-Employment Contracts."
February 27, 1997 COMPENSATION COMMITTEE
William H. Burgess, Chairman
Gerald D. Murphy
Alan M. Wiener
The Board of Directors of ARI, exclusive of Gerald D. Murphy,
approved an employment agreement with Gerald D. Murphy described in "Executive
Compensation -- Employment Contracts," partially to insure Mr. Murphy's
continuing role as Chairman of the Board of Directors of ARI due to his
extensive relationships with customers and banks of ARI and the need to maintain
continuity in such relationships.
22
<PAGE> 27
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, 1992 to March 31, 1997, the end of the Company's
1997 fiscal year and assumes that $100 was invested at the beginning of the
period in the Company's Common Stock and in each Index and that any dividends
were reinvested.
The stock price performance shown on the graph is not necessarily
indicative of future price performance.
<TABLE>
<CAPTION>
Total return for the
NASDAQ Stock
ERLY Market - U.S. S&P Food Products
Measurement Period Industries Inc. companies Companies Index
- ------------------ ------------------- ---------------------- -----------------
<S> <C> <C> <C>
At April 1, 1992 $100 $100 $100
FYE March 31, 1993 94 115 109
FYE March 31, 1994 135 124 101
FYE March 31, 1995 333 138 120
FYE March 31, 1996 299 187 151
FYE March 31, 1997 304 208 190
</TABLE>
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, 1997 except as follows: Annual Report Form 5 to
report the effect of the stock dividend in fiscal year ended March 31, 1997, was
not timely filed for R.N. McCombs and a Form 4 to report a sale of stock in
August 1996 was not timely filed by John S. Poole, Senior Vice President of ARI.
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. Deloitte & Touche
LLP will have the opportunity to make a statement if it desires 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, although it is possible that the Powell Group may bring up
their proposal to expand the Board of Directors to seven persons or any other
proposal described under "The Powell Group's Solicitation." However, if
any other business shall properly come before the Annual 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 and will be voted against any such proposals submitted by the Powell
Group.
23
<PAGE> 28
1998 SHAREHOLDER PROPOSALS
Any proposal a shareholder of the Company wishes to have presented
at the 1998 Annual Meeting of Shareholders in the Company's Proxy Statement as
provided for in the Proxy Rules of the Securities and Exchange Commission must
be received by the Company on or before ______ ___, 1998.
By order of the Board of Directors
Thomas A. Whitlock
Vice President and
Assistant Secretary
Los Angeles, California
September ___, 1997
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED WHITE PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED, SELF-ADDRESSED POSTAGE PREPAID ENVELOPE.
24
<PAGE> 29
APPENDIX A
PROPOSED AMENDMENT OF THE BYLAWS*
Except as otherwise provided by the California General
Corporation Law or the Articles of Incorporation, each shareholder shall have
one vote for each share held of record which has voting power upon the matter in
question. In an election of directors, each directorship shall constitute a
separate matter. At any election of directors, assuming a quorum is present,
the candidates receiving the highest number of votes up to the number of
directors to be elected shall be elected. This second paragraph of Section 6
of this Article II may not be changed, amended or eliminated without the
approval of the holders of a majority of the outstanding shares.
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
SIXTH: Any action required or permitted to be taken by
shareholders of this Corporation must be taken at a duly called annual meeting
or special meeting of shareholders of the corporation and no action may be
taken by the written consent of the shareholders.
- -------------------
* Amending the second paragraph of Section 6 of Article II of the Bylaws.
A-1
<PAGE> 30
AMENDED
PRELIMINARY COPY
PROXY ERLY INDUSTRIES INC. PROXY
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 22, 1997, at the Annual Meeting of Shareholders to be held on September
26, 1997, or any adjournment thereof.
1. ELIMINATION OF CUMULATIVE VOTING: The adoption of an amendment to the Bylaws
to eliminate cumulative voting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELIMINATION OF SHAREHOLDERS ACTION BY WRITTEN CONSENT: The adoption of an
amendment to the Articles of Incorporation to provide that actions required
or permitted to be taken by the shareholders must be effected only at a duly
called annual or special meeting of shareholders and not by written consent.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ELECTION OF DIRECTORS: Election of Gerald D. Murphy, Douglas A. Murphy,
William H. Burgess, Bill J. McFarland and Alan M. Wiener.
FOR [ ] WITHHELD [ ] FOR ALL EXCEPT [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below):
- --------------------------------------------------------------------------------
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
(Continued on reverse side.)
<PAGE> 31
(Continued from reverse side.)
This Proxy, when properly executed, will be voted in the manner directed
herein. The individuals named above are authorized to vote in their discretion
on any other matters that properly come before the meeting. With respect to
Proposals 1 and 2, where no vote is specified, this proxy will be voted for such
proposals. With respect to the election of directors (Proposal 3), where no vote
is specified, or where the box FOR all nominees is marked a proxy will be cast
at the discretion of the proxies named herein in order to elect as many nominees
as believed possible under the then prevailing circumstances. If you withhold
your vote for an individual nominee, all of your cumulative votes, if available,
will be distributed among the remaining nominees at the discretion of the
proxies.
BY EXECUTING AND DATING THIS WHITE PROXY, ALL PREVIOUSLY EXECUTED PROXIES
EXECUTED BY THE UNDERSIGNED SOLICITED BY ANYONE, INCLUDING THE COMPANY OR THE
POWELL GROUP, IS HEREBY REVOKED.
<TABLE>
<C> <S>
Dated: , 1997
-----------------------
Signature(s)
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.
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THIS WHITE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
