AMERICAN RICE, INC
16825 Northchase Drive
Suite 1600
Houston, Texas 77060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 26, 1996
To the Shareholders of American Rice, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of American
Rice, Inc. ("ARI" or the "Company") will be held at the offices of the
Company, 16825 Northchase Drive, Suite 1600, Houston, Texas 77060, on
Thursday, September 26, 1996 at 10:00 a.m., Central Standard Time, for the
following purposes:
1. To vote to elect seven directors to the Board of Directors;
2. To transact such other business as may properly come before the meeting or
any adjournment(s) thereof.
The Board of Directors has fixed the close of business on August 22, 1996 as
the record date for determination of shareholders entitled to notice of and
vote at such meeting or any adjournment(s) thereof. Only shareholders of
record at the close of business on the said record date are entitled to notice
of, and to vote at, such meeting. The transfer books will not be closed.
If you are unable to attend the meeting, you may vote by proxy. The enclosed
proxy is provided for shareholders who cannot attend the meeting but desire
their stock voted. Your proxy will be returned to you if you are present at
the meeting and request a return of your proxy.
TO INSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. THE ENCLOSED PREPAID RETURN
ENVELOPE MAY BE USED FOR THAT PURPOSE.
By Order of the Board of Directors,
Robin L. Mann
Assistant Secretary
Houston, Texas
August 30, 199
<PAGE>
AMERICAN RICE, INC
16825 Northchase Drive
Suite 1600
Houston, Texas 77060
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To be held September 26, 1996
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the management of American Rice, Inc.
("ARI" or the "Company") at the direction of the Board of Directors (the
"Board") for use at the Annual Meeting of Shareholders of ARI to be held on
Thursday, September 26, 1996 (the "Annual Meeting") at the time and place and
for the purposes set forth in the accompanying Notice of Annual Meeting
("Notice") and at any adjournment(s) thereof.
When proxies in the accompanying form are received properly executed, the
shares will be voted by the persons named therein, unless contrary
instructions are given. The proxy will not be used for the election of all
nominees as directors if authority to do so is withheld on the proxy, and it
will not be used for the election of any individuals whose names are written
in the designated blank spaces on the proxy. When no instruction is indicated
with respect to the election of directors, the proxy will be voted FOR the
election of all nominees as directors. If no instruction is indicated with
respect to the election of all nominees named in Item (1) of the proxy, but
names for one or more nominees are listed in the designated blank spaces on
the proxy, the proxy will be voted FOR the election of all nominees not so
listed.
Any shareholder of ARI has the right to revoke his proxy at any time before
its use by submitting a written revocation to the Assistant Secretary of ARI.
The solicitation of proxies will be by mail, and copies of the Notice, Proxy
Statement and Proxy will be mailed on or about September 6, 1996 to
shareholders of record on the record date for the Annual Meeting. Upon
request, additional copies of the proxy material will be furnished without
cost to brokers and other nominees to be forwarded to the beneficial owners of
shares held in their names. ARI will bear all costs of preparing, printing,
assembling, delivering and mailing the Notice, Proxy Statement, Proxy and
Annual Report.
OUTSTANDING STOCK; RECORD DATE
The record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting is the close of business on August 22, 1996
(the "Record Date"). As of the Record Date, there were 2,443,892 shares of
common stock, $1.00 par value, of ARI ("ARI Common Stock") issued and
outstanding and 777,777 shares of Series A convertible preferred stock, $1.00
par value, of ARI (the "Series A Preferred Stock") issued and outstanding, and
2,800,000 shares of Series B convertible preferred stock, $1.00 par value, of
Page 1<PAGE>
ARI (the "Series B Preferred Stock") issued and outstanding. Each share of
ARI Common Stock and each share of Series A Preferred Stock is entitled to one
vote on each matter to be acted upon at the Annual Meeting and each share of
Series B Preferred Stock is entitled to two votes on each matter to be acted
upon at the annual meeting. The Articles of Incorporation of ARI do not
provide for voting rights for Series C preferred stock, $1.00 par value, non-
voting, non-convertible (the "Series C Preferred Stock") for the election of
Directors; however, such shares have the right to vote in certain
circumstances, none of which circumstances are the subject of this Proxy
Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the share ownership of ARI's Common Stock, the
Series A Preferred Stock, and the Series B Preferred Stock at July 26, 1996
(i) owned by ERLY Industries Inc. ("ERLY"), the only person or entity known to
own more than five percent of the outstanding voting shares of any of the
voting capital stock of the Company; (ii) each director of the Company; (iii)
each executive officer named in the Summary Compensation Table; (iv) all
directors and executive officers of the Company and its subsidiaries as a
group; and (v) all other known owners of five percent or more of ERLY common
stock. Except as indicated, each of the stockholders has sole voting power
and investment power with respect to the shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Title of Class Beneficial Ownership of Class
- ----------------------------------- ------------------------ -------------------- --------
<S> <C> <C> <C>
ERLY Industries Inc. Common Stock 7,155,554(6) 81%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(6) 100
Suite 1800 Series B Preferred Stock 2,800,000(6) 100
Los Angeles, CA 90024
Gerald D. Murphy (1)(8) Common Stock 7,155,554(6) 81%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(6) 100
Suite 1800 Series B Preferred Stock 2,800,000(6) 100
Los Angeles, CA 90024
Douglas A. Murphy (2) Common Stock 7,155,554(6) 81%
16825 Northchase Series A Preferred Stock 777,777(6) 100
Suite 1600 Series B Preferred Stock 2,800,000(6) 100
Houston, TX 77060
William H. Burgess (3) Common Stock 7,155,554(6) 81%
550 Palisades Drive Series A Preferred Stock 777,777(6) 100
Palm Springs, CA 92262 Series B Preferred Stock 2,800,000(6) 100
Internationale Nederlanden Common Stock 7,155,554(6) 81%
(U.S.) Capital Corporation (4) Series A Preferred Stock 777,777(6) 100
135 E. 57th Street Series B Preferred Stock 2,800,000(6) 100
New York, NY 10022-2101
Kennedy Capital Management, Inc. (5) Common Stock 7,155,554(6) 81%
425 N. New Ballas Road, #181 Series A Preferred Stock 777,777(6) 100
St. Louis, MO 63141 Series B Preferred Stock 2,800,000(6) 100
</TABLE>
Page 2<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Title of Class Beneficial Ownership of Class
- ----------------------------------- ------------------------ -------------------- --------
<S> <C> <C> <C
S.C. Bain, Jr., Director Common Stock 4,465(7) -
P.O. Box 250
Bunkie, LA 71322
John M. Howland, Director - - -
16825 Northchase
Suite 1600
Houston, TX 77060
Richard N. McCombs, Director - - -
Executive Vice President and
Chief Financial Officer
16825 Northchase
Suite 1600
Houston, TX 77060
George E. Prchal, Director - - -
16825 Northchase
Suite 1600
Houston, TX 77060
Lee Adams Common Stock 276 -
Senior Vice President
International Marketing
16825 Northchase
Suite 1600
Houston, TX 77060
Bill J. McFarland - - -
Senior Vice President and President,
Comet American Marketing Division
16825 Northchase
Suite 1600
Houston, TX 77060
John S. Poole - - -
Senior Vice President and President,
Comet Rice Division
16825 Northchase
Suite 1600
Houston, TX 77060
All directors and executive
officers as a group (13 persons) Common Stock 7,160,295 81%
</TABLE>
(1) Mr. Gerald D. Murphy, Chairman of the Board of ERLY, is the direct and
indirect record holder and beneficial owner of 1,714,253 shares of ERLY common
stock representing approximately 36.5% of the outstanding shares. Mr. Murphy's
indirect beneficial ownership represents 556,158 shares of ERLY common stock
owned 1) directly by his son Douglas A. Murphy, President of the Company,
and 2) held in trust for his grandson. Of this total, Gerald D. Murphy has
voting control of the 4,591 shares held in trust for his grandson, however, he
denies holding voting or investment control of the balance of the 551,567
shares owned directly by his son, Douglas A. Murphy.
Page 3<PAGE>
(2) Douglas A. Murphy, President and a director of ERLY, is the beneficial
owner of 551,567 shares of ERLY common stock, representing approximately 11.8%
of the outstanding shares.
(3) William H. Burgess, a director of ERLY, beneficially owns 258,450 shares
of ERLY common stock, representing approximately 6.0% of the outstanding
shares.
(4) International Nederlanden (U.S.) Capital Corporation ("ING Capital") filed
a Schedule 13D in March 1995 concerning possible beneficial ownership of
525,166 shares, as adjusted for a 15% stock dividend (on a fully diluted
basis), of ERLY Industries Inc. common stock. The potential ownership
consists of stock that may be purchased pursuant to two warrant issues:(i) An
"A" Warrant, exercisable into 262,583 shares at $.01 per share any time after
April 1, 1996, and (ii) a "B" Warrant, exercisable into 262,583 shares at $.01
per share after April 1, 1995. These warrants were issued as an inducement
and condition to certain loans and financial accommodations made by ING
Capital for the benefit of ERLY as well as for general investment purposes.
The warrants may be redeemed by the Company prior to September 30, 1996 upon
receipt of certain payments by ING Capital as described below.
In February 1995, the "A" and "B" warrants previously issued were amended to
include a call feature, under which the Company could repurchase the warrants
at a price of $7.61 per share (as adjusted for a 15% stock dividend). The
call feature also eliminates the redemption provision, until the call period
expires.
In June 1995, the February extension was amended to reduce the $7.61 call
price per share to $4.78 per share (as adjusted) and extended through
September 30, 1996. If the call option is not exercised, the Company would
have outstanding warrants to purchase approximately 525,166 shares of common
stock at $.01 per share, all of which would be subject to redemption at the
current market price of ERLY's stock.
(5) Kennedy Capital Management, Inc. owns 437,429 shares of ERLY common
stock, representing approximately 10.2% of the outstanding shares of ERLY
common stock.
(6) ERLY has sole voting and dispositive power over such shares. ERLY has
pledged these shares to secure the payment of ARI's term debt. 200,000 of
these shares are pledged to former lenders of ARI to secure the obligations of
ERLY on promissory notes aggregating $3.0 million.
(7) Mr. Bain has sole voting and dispositive power with respect to 296 shares
and shared voting and dispositive power with respect to 4,169 shares.
(8) Kingwood Lakes South, L.P. ("Kingwood"), a partnership created to build a
residential development near Houston, Texas filed a Schedule 13D on April 7,
1995 (subsequently amended by 13D filings on April 1, 1996 and May 30, 1996)
concerning possible beneficial ownership of 383,333 shares of ERLY Industries
Inc. common stock. Kingwood holds the stock as security for a promissory note
in the principal amount of $1,500,000 issued by Mr. Gerald D. Murphy as a
capital contribution to Kingwood.
Page 4<PAGE>
The Company and ERLY have been named as defendants in a lawsuit filed in the
district court of Harris County, Texas. This is a dispute between the general
partner, Kingwood and G.D. Murphy and D.A. Murphy, Chairman and President,
respectively, of ARI and ERLY. Damages sought are in the range of $10
million, plus attorneys' fees and punitive damages. ARI and ERLY are named as
defendants in the lawsuit because of their actions to obtain restraining
orders to prevent threatened foreclosures on ERLY common stock pledged as
collateral by G.D. Murphy and to stop interference by Kingwood with ARI's
mortgage note financing as well as certain other alleged activities. ARI and
ERLY believe they have valid defenses in this case and that damages, if any,
will not have a material effect on the Company's financial condition; however,
as with any litigation, the ultimate outcome is unknown.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
Seven directors are to be elected at the Annual Meeting, each to hold office
until the next Annual Meeting of Shareholders and until his successor shall be
duly qualified and elected. The persons named in the enclosed proxy will vote
the shares covered thereby in favor of the nominees listed below unless
specifically instructed to the contrary. Although the management of ARI does
not contemplate that any of the nominees will be unable to serve, if such a
situation arises before the meeting, the proxies will be voted for a
substitute to be named by the Board of Directors. All of the nominees named
below are now serving as directors of ARI. The affirmative vote of a majority
of the voting stock of ARI represented at the meeting, either in person or by
proxy, will be required to elect each nominee to the Board of Directors of
ARI. Abstentions and broker non-votes are each included in the determination
of the number of shares present and voting, but are not counted for purposes
of determining whether a proposal has been approved.
NOMINEES
Served as a
Name Age Current Position with ARI Director Since
- --------------- --- ------------------------------- -------------
Gerald D. Murphy 68 Director, Chairman of the Board April 1988
Douglas A. Murphy 40 Director, President and October 1990
Chief Executive Officer
Richard N. McCombs 50 Director, Executive Vice President June 1993
- Finance & Administration,
Secretary and Treasurer
S. C. Bain, Jr. 47 Director October 1987
William H. Burgess 79 Director April 1988
John M. Howland 48 Director October 1987
George E. Prchal 53 Director June 1993
Gerald D. Murphy has served as Chairman of the Board of the Company since
October 1993, and as a director since 1988. He served as Chairman and Chief
Executive Officer of Comet Rice, Inc. ("Comet"), a wholly owned subsidiary of
ERLY from 1986 until ERLY acquired an additional 33% ownership interest in ARI
through a reverse acquisition by ERLY's wholly-owned subsidiary, Comet, in
1993 (the "Acquisition"). He has also served as President, Chief Executive
Officer and Chairman of the Board of ERLY since 1964. Currently, Mr. Murphy
also serves as a director of Pinkerton's, Inc., a security and investigation
Page 5<PAGE>
services firm, and High Resolution Sciences, Inc., a technological
corporation. He previously served as a director of Wynn's International,
Inc., and Sizzler Restaurants International, Inc.
Douglas A. Murphy has served as President and Chief Executive Officer of the
Company since June 1993 and as a director since 1990. He was President of
Comet American Marketing, now a division of ARI, from 1986 to 1990 and has
served in various other capacities with Comet since 1982. He has served as
President and as a director of ERLY since 1990. He is also a director advisor
of Compass Bank Houston. Douglas A. Murphy is the son of Gerald D. Murphy.
Richard N. McCombs has served as Executive Vice President of Finance and
Administration, Treasurer, Secretary and a director of the Company since 1993.
In addition, he has served as Managing Director of the ARI-Vinafood joint
venture since September 1994 and as Vice President and Chief Financial Officer
of ERLY since 1990.
S. C. Bain, Jr. has served as a director of ARI since 1987. He has served as
President of Bain, Inc., a farming corporation, since 1985 and has been a
partner at Bain Farms since April 1988.
William H. Burgess has been a director of ARI since 1988 and a director of
ERLY since 1976. In addition, he has been a private business consultant and
the Chairman of CMS Digital, Inc., a privately held company since 1986. From
1978 to 1986, Mr. Burgess was Chairman of International Controls Corp., an
internationally diversified manufacturing company.
John M. Howland has served as a director of ARI since October 1987 and a
consultant to ARI since October 1993. He served as Chairman of the Board of
Directors from June 1993 until October 1993 when he resigned to become
President and Chief Executive Officer of Rice Milling and Trading Ltd., Inc.,
a foreign corporation in the business of rice trading and processing. He
served as Chairman of the Board and the Chief Executive Officer and President
of ARI prior to the Acquisition ("Pre-Acquisition ARI") from its inception in
1988 until June 1993 and served in various capacities with a Texas
agricultural cooperative marketing association ( the "ARI Cooperative") from
1983 until its dissolution in 1991.
George E. Prchal has served as a director of ARI since June 1993 and a
consultant to ARI since October 1993 and is presently the Executive Vice
President of Rice Milling and Trading Ltd., Inc. He served as Executive Vice
President of ARI from August 1988 to October 1993 and in various capacities
with the ARI Cooperative from February 1986 until its dissolution in 1991.
From July 1982 to February 1986 he served as Vice President of Marketing and
Sales and then as the President of Comet.
Page 6<PAGE>
EXECUTIVE OFFICERS OF ARI
The following table sets forth information about the executive officers and
other key employees of ARI who are not nominees to the board of directors and
immediately below the table is biographical information for those executive
officers and key employees.
Name Age Position(s) with ARI
- -------------------- --- ----------------------------------------------
Lee Adams 55 Senior Vice President - International Marketing
Kenneth C. McCorkle 47 Senior Vice President and President
- Early California Foods
Bill J. McFarland 59 Senior Vice President and President
- Comet American Marketing Division
John S. Poole 50 Senior Vice President and President
- Comet Rice Division
C. Bronson Schultz 54 Vice President of Finance and Data Processing
Joseph E. Westover 51 Vice President and Controller
Lee Adams has served as Senior Vice President of International Marketing of
ARI since June 1993. In addition, he served as Group Vice President of
International Marketing of Pre-Acquisition ARI from October 1987 to June 1993.
He served in various capacities with the ARI Cooperative from 1975 until its
dissolution in 1991 and in various capacities with Comet from 1963 until 1972.
Kenneth C. McCorkle has served as Senior Vice President of ARI and President
of Early California Foods since February 1996. He served in various capacities
with ERLY from 1977 to 1985.
Bill J. McFarland has served as Senior Vice President of ARI and President of
the Comet American Marketing division of ARI since 1993. Mr. McFarland has
served as a director of ERLY since 1986 and Vice President of ERLY since 1976.
He served as President of ERLY Food Group from 1990 to 1993 and as President
of Early California Foods Inc., a division of ERLY, and in various other
capacities with ERLY from 1972 to 1990.
John S. Poole has served as Senior Vice President and President of the Comet
Rice Division of ARI since June 1993 and served as President of Comet from
August 1990 until its liquidation after the Acquisition. He served in various
capacities with Comet from 1970 to 1990.
C. Bronson Schultz has served as Vice President of Finance and Data Processing
of ARI since January 1994. He served as Vice President and Chief Financial
Officer of ERLY Juice Inc. from 1988 through 1993, as Vice President of
Finance of Comet from 1974 to 1986 and as Vice President of Finance of Comet
American Marketing from 1986 to 1988.
Joseph E. Westover has served as Vice President and Controller of ARI since
January 1994. From 1983 through 1993, he served as Assistant Vice President
of Finance with ARI and the ARI Cooperative and from 1977 to 1983 in various
positions with the ARI Cooperative.
Page 7<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of ARI held three scheduled meetings during the year
ended March 31, 1996. Each director was in attendance at 75 percent or more
of all of the meetings of the Board of Directors and all committees on which
each director served. The Board of Directors has three committees with
specific responsibilities to support the operations of the full Board. These
committees are: the Executive Committee, the Audit Committee, and the
Compensation Committee. The Board of Directors does not have a nominating
committee, as the entire Board acts in this capacity.
Executive Committee
The Board of Directors of ARI has delegated to the Executive Committee the
powers and authority of the Board in the management of the business affairs of
ARI, except that the Executive Committee does not take any actions which could
await actions by the full Board or authorize transactions which would be both
material and outside the ordinary and normal course of business of ARI. Mr.
Douglas A. Murphy serves as Chairman of this Committee, and Messrs. John M.
Howland and Gerald D. Murphy are Committee members. During the fiscal year
ended March 31, 1996, the Executive Committee held one meeting.
Audit Committee
The responsibilities of the Audit Committee include: selection of independent
accountants; review of quarterly and annual financial statements with the
independent accountants; inquiry into the effectiveness of ARI's financial and
accounting functions and internal controls through discussions with ARI's
officers and independent accountants; review of any transactions in which
management or controlling persons of ARI have an interest; and review of, with
ARI's independent accountants, the planning of and results of audits and the
independent accountants' findings and recommendations relating to ARI's
accounting practices, internal controls and accounting procedures. Mr. S. C.
Bain, Jr. is Chairman of this Committee, and Messrs. William H. Burgess and
Richard N. McCombs are Committee members. During the fiscal year ended March
31, 1996, the Audit Committee held two meetings.
Compensation Committee
The Compensation Committee reviews and sets compensation levels of the Chief
Executive Officer and other officers, and issues compensation guidelines for
other members of management and other ARI employees. It is responsible for
the administration of ARI's various compensation plans including annual
salaries, bonuses and other benefits provided to executives. Mr. Gerald D.
Murphy is Chairman and Messrs. S. C. Bain, Jr. and William H. Burgess are
committee members. During the fiscal year ended March 31, 1996, this
committee held one meeting.
Page 8<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
As a company registered under Section 12 of the Securities Exchange Act of
1934, the executive officers, directors and beneficial owners of more than 10%
of the Company's common stock have reporting requirements pursuant to Section
16(a) of such act. Based on available information, the Company believes that
all the required filings were made in a timely manner.
EXECUTIVE COMPENSATION
Director Compensation. Directors who are not executive officers of the Company
are paid $2,000 per quarter plus $1,500 for each board meeting attended and
$1,100 for each committee meeting attended except that committee meetings held
on the same day as board meetings are not compensated separately. During the
fiscal year ended March 31, 1996, Messrs. John M. Howland and George Prchal
each received $100,000 for certain international marketing services provided
to ARI.
Executive Officer Compensation. The following table sets forth information for
the years ended March 31, 1994 to 1996, for the Chief Executive Officer of ARI
and the four other most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
--------------------------- All
Year Other Restricted Other
Ended Compen- Stock Compen-
Name and Principal Position March 31, Salary Bonus sation(2) Awards(3) sation(4)
- ------------------------------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy 1996 $225,000 $100,000 $5,000 $ - $5,319
Director, President and 1995 207,000 69,552 5,791 17,890 8,914
Chief Executive Officer 1994 173,654 50,000 2,000 75,000 15,855
Gerald D. Murphy 1996 178,750 100,000 6,630 - 5,609
Director 1995 170,500 57,288 7,233 14,736 9,060
Chairman of the Board 1994 179,167 50,000 - 75,000 196,645
Bill J. McFarland 1996 204,000 - 5,555 - 4,002
Senior Vice President 1995 198,000 55,400 4,075 $14,263 7,500
President, CAM Division 1994 135,192 5,000 - 5,000 -
John S. Poole 1996 171,000 5,000 5,356 - 3,392
Senior Vice President 1995 165,000 46,200 6,509 $11,886 7,500
President, Comet Rice Division 1994 155,000 15,000 1,736 15,000 12,034
Lee Adams 1996 166,000 - 9,815 - 3,252
Senior Vice President 1995 160,000 44,800 9,100 11,524 6,017
International Marketing 1994 155,000 5,000 6,390 5,000 8,633
</TABLE>
Page 9<PAGE>
(1) Amounts earned for services performed for ERLY and its other
subsidiaries, not included in the table above, are as follows:
<TABLE>
<CAPTION>
Annual Compensation
--------------------------- All
Year Other Restricted Other
Ended Compen- Stock Compen-
Name March 31, Salary Bonus sation(2) Awards(3) sation(4)
- ------------------------------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy 1996 $25,000 $ - $ - $ - $ -
1995 23,000 23,728 - 18,968 -
1994 36,346 - 2,975 - 100,000
Gerald D. Murphy 1996 146,250 - - - -
1995 139,500 62,872 - 29,038 -
1994 110,833 - 588 - 100,000
Bill J. McFarland 1996 - - - - -
1995 - - - - -
1994 54,808 - 1,815 - 11,743
</TABLE>
(2) Amounts include: (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.
Under this Plan, key executive officers are reimbursed for expenses incurred
by them and their dependents for medical and dental care not covered by other
sources.
(3) Amounts include awards of restricted ERLY common stock. The number of
shares of this stock held and market value at March 31, 1996, were as follows:
Name Shares Market Value
- ------------------ --------- ----------
Douglas A. Murphy 1,675 $14,206
Gerald D. Murphy 2,565 22,520
Bill J. McFarland - -
John S. Poole - -
Lee Adams - -
Such shares are restricted for a two-year period from date of issuance.
(4) Amounts include Company contributions to the ERLY Employees' Profit
Sharing Retirement Plan,. In 1994, Douglas A. Murphy and Gerald D. Murphy were
each paid a fee of $100,000 by ERLY for their personal guarantees of $5.0
million of bank debt under an agreement between ING Capital Bank, ERLY and
ERLY Juice Inc. In 1994, Gerald D. Murphy was also paid a fee of $180,000 by
ERLY for a personal guarantee of an $8 million bank line of credit to Comet.
Page 10<PAGE>
Stock Options and Stock Appreciation Rights. The following table presents
information on ERLY common stock options held by the executive officers named
in the Summary Compensation Table at the end of fiscal 1996. During fiscal
1996, Mr. John S. Poole exercised options granted in 1988 for the purchase of
9,300 shares of ERLY common stock at a price of $3.92 per share. No other
named officers exercised any stock options during the year.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Fiscal 1996
and March 31, 1996 Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs In-The-Money Options/SARs
Acquired on Value at March 31, 1996 at March 31, 1996(2)
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------- ----------- ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy - - 76,533 - $371,950 -
Gerald D. Murphy - - - - - -
Bill J. McFarland - - 30,613 - 148,779 -
John S. Poole 9,300 $41,013 9,834 - 47,793 -
Lee Adams - - - - - -
</TABLE>
(1) Market value of underlying ERLY securities at the exercise date ($8.33),
less the exercise price ($3.92).
(2) Market value of underlying ERLY securities at March 31, 1996 ($8.78),
less the exercise price ($3.92).
Employment Agreement. In connection with the ARI Cooperative's reorganization
as Pre-Acquisition ARI, Pre-Acquisition ARI entered into an employment
agreement with Mr. Lee Adams, among others. Mr. Adams' employment agreement
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), (ii) on
the occurrence of a Benefits Event (as defined) following a Change of Control,
if termination is at the option of Mr. Adams, 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. Adams
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 or (ii) during any consecutive years, the individuals comprising
a majority of the Board of Directors at the beginning of such period shall
cease to constitute a majority. Generally, benefits payable under the
employment agreement include: continuation of Mr. Adams' base salary,
continuation of Mr. Adams' participation in profit sharing, pension and other
executive compensation plans, 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 (as defined) during such five-
year period, and indemnification for judgments, fines and expenses incurred by
Mr. Adams by reason of his serving as an officer. In consideration of these
benefits, Mr. Adams has agreed not to compete with ARI or to disclose any
Page 11<PAGE>
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. Adams' termination may be deemed
to be "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code and, as such, would not be deductible by ARI for federal
income tax purposes.
Other Compensation. ARI also provides certain non-cash compensation and
personal benefits to executive officers. The incremental cost to ARI of
providing such compensation and personal benefits did not, for the fiscal year
ended March 31, 1996, exceed $25 thousand or 10 percent of compensation for
any individual named in the cash compensation table above, or, with respect to
all executive officers as a group, the amount of $25 thousand times the number
of executive officers or 10 percent of the compensation for such group.
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. The Compensation Committee consists of
Gerald D. Murphy, who acts as chairman of the committee, William H. Burgess
and S. C. Bain, Jr. Mr. Murphy is Chairman of the Board of Directors of the
Company and is the beneficial owner of 36.5% of ERLY common stock. Mr.
Burgess is a private business consultant, Chairman of CMS Digital, Inc. and a
Director of ERLY. He is the beneficial owner of 6.1% of ERLY common stock.
All decisions by the Compensation Committee were reviewed and approved without
change by the full Board of Directors of the Company. Mr. Gerald D. Murphy
did not participate in any Compensation Committee or Board of Directors
discussions or decisions concerning his own compensation. Except for Mr.
Murphy, no other member of the Compensation Committee is now or ever has been
an officer or employee of the Company or its subsidiaries.
Mr. Murphy and Mr. Burgess are also Directors of ERLY. Both serve on ERLY's
Compensation Committee of the Board of Directors, with Mr. Burgess serving as
chairman. Mr. Bain is President of Bain, Inc. and a partner at Bain Farms.
Report of the Compensation Committee. The Compensation Committee reviews and
sets compensation levels of the Chief Executive Officer and other officers,
and issues compensation guidelines for other members of management and other
ARI employees. It is responsible for the administration of ARI's various
compensation plans including annual salaries and other benefits provided to
executives.
Base Salary Levels
Base salary levels of the Chief Executive Officer and other executive officers
are not formally set by the Committee using specific performance goals or
empirical criteria. Rather, base salary levels for the executives of the
Company and its subsidiaries are set annually based on a variety of subjective
factors such as personal performance, current responsibilities, specific
accomplishments or events, increase in the consumer price index, future
potential contributions to the Company, informal surveys of compensation paid
to executive officers holding similar positions in other publicly traded
Page 12<PAGE>
companies of comparable size, and the performance of the Company and the
subsidiary or division to which the executive is assigned.
All of the subjective factors were considered by the Committee, and it is not
reasonably possible to assign relative significance to these factors on an
individual basis.
In considering the amount of base salary for fiscal year 1996 for Mr. Douglas
A. Murphy, Chief Executive Officer, the Compensation Committee specifically
considered the role he played in the start-up of the ARI-Vinafood joint
venture in Vietnam, the successful completion of the $100 million mortgage
note financing by ARI in August 1995, and the contract for sale of ARI's
principal Houston property.
Bonuses
In fiscal 1995, ARI's Board of Directors adopted an Incentive Compensation
Plan (the "Incentive Plan"), pursuant to which certain key officers of the
Company are entitled to receive bonuses that are payable 80% in cash and 20%
in common stock if certain specified Returns on Equity (as defined therein) of
ARI are achieved. Bonuses under the Incentive Plan are 70% earned in the year
the Return on Equity is 15% or greater and the remaining 30% is earned in the
following fiscal year if the Company achieves a Return on Equity of 15% or
greater in such subsequent fiscal year. Any portion of the bonus that would
otherwise be available under the Incentive Plan in the subsequent fiscal year
will be forfeited upon a participant's voluntary termination of employment.
Furthermore, no shares of stock issued under the Incentive Plan can be
transferred for two years following issuance. The Incentive Plan is not
subject to any provisions of ERISA. No bonuses were awarded under the terms of
the Incentive Plan for fiscal 1996. Certain executives were given individual
incentive bonuses for merit and recognition of performance for the successful
completion of the $100 million mortgage note offering by ARI in August 1995.
Other
The Company provides insured medical benefits to executive officers that are
generally available to all full-time employees of the Company. Executive
officers also are eligible to participate in the ERLY Industries Inc.
Employees Profit Sharing and Retirement Plan on the same basis as all other
eligible employees of the Company. The Company provides additional benefits
to executive officers through executive medical coverage and Company provided
automobiles.
Amounts paid in fiscal 1996 under the above described plans and programs for
the Chief Executive Officers and the four most highly compensated executive
officers of ARI are included in the compensation table and related footnotes
presented in the "Executive Officer Compensation" section.
Page 13<PAGE>
In 1993, the U.S. Treasury Department issued regulations to the Internal
Revenue Code (Section 162(m)) that prevents publicly traded companies from
receiving tax deductions on compensation paid to executive officers in excess
of $1 million. ARI 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 ARI for the foreseeable future.
Compensation Committee
American Rice, Inc.
Gerald D. Murphy
S.C. Bain, Jr.
William H. Burgess
Page 14<PAGE>
FIVE YEAR SHAREHOLDER RETURN COMPARISON
Set forth below is a graph showing the five year cumulative total return of
ARI stock as compared with the CRSP index of all NASDAQ U.S. stocks and a peer
group index represented by the Standard and Poors index of food stocks. The
graph compares the change over the five year period ended March 31, 1996 of
$100 invested on March 31, 1991 in ARI and in each of the indices assuming
reinvestment of dividends (ARI paid no dividends during this period).
The data presented in tabular form:
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
American Rice, Inc. $100 $39 $100 $202 $98 $85
S & P Foods Stocks $100 $109 $119 $110 $131 $164
NASDAQ U. S. Stocks $100 $127 $147 $158 $176 $239
Page 15<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management. In October 1994, ARI entered into an agreement
with Rice Milling and Trading, Ltd., Inc. ("RMT"), a company which operates a
receiving, processing, storage and bagging facility in Saudi Arabia to receive
and pack ARI products on an exclusive basis and under ARI supervision. Market
shipments under this agreement began in June 1995. Two directors of ARI, John
M. Howland and George E. Prchal, are executive officers of RMT and are
consultants to ARI. During each of fiscal 1995 and fiscal 1994, the Company
paid $100,000 to each of Mr. Howland and Mr. Prchal for consulting services.
S. C. Bain, Jr., a director of ARI, sells rough rice to ARI under grower
agreements which contain the same terms or options as ARI's agreements with
other growers. The amount of rice provided by Mr. Bain has not, during any of
the last three years, exceeded one percent of the total volume of rough rice
purchased by ARI.
Transactions with ERLY. As a result of the Acquisition, ERLY increased its
ownership in the combined voting rights of ARI stock outstanding from 48% to
81%. Because of their positions as directors and significant stockholders of
ERLY, Gerald D. Murphy, Douglas A. Murphy, and William H. Burgess can be
deemed to be the beneficial owners of the ARI stock owned by ERLY.
Additionally, Gerald D. Murphy, Douglas A. Murphy and William H. Burgess also
serve as directors of ARI. Gerald D. Murphy is Chairman of the Board of ARI
and Douglas A. Murphy is the President and Chief Executive Officer of ARI.
In a public offering concluded on August 24, 1995 ARI sold $100 million in
13% Mortgage Notes (the "Mortgage Notes") due 2002 (the "Transaction"). Using
proceeds from the Transaction, ARI lent ERLY approximately $10.5 million in
exchange for a promissory note from ERLY bearing interest at 15% (the "15%
ERLY Intercompany Note"). ERLY used a portion of the proceeds to satisfy $9.6
million of indebtedness owed by ERLY Juice Inc. and guaranteed by ERLY, to
Internationale Nederlanden (U.S.) Capital Corporation ("ING Capital") and to
facilitate the repurchase of ERLY common stock warrants held by ING Capital.
ING Capital beneficially owns warrants to acquire 15% of the outstanding
voting capital stock of ERLY (on a common stock equivalent basis). In
addition, ING Capital was a participant in ARI's then existing term loan. ARI
also used a portion of the proceeds from the sale of the Mortgage Notes to
retire the outstanding principal amount of its term loan, and, in connection
therewith ING Capital received approximately $23.8 million.
In connection with the Acquisition, the intercompany payables and receivables
were netted and resulted in a note receivable owed to ARI by ERLY bearing
interest at 6% (the "6% ERLY Intercompany Note"). This note was amended in
connection with the Transaction to provide that it will mature one day after
the maturity date of the Mortgage Notes, has a principal amount of
$10.0 million and is payable out of half of any dividends received on the
Series B preferred stock until the 15% ERLY Intercompany Note is paid in full,
at which time the 6% ERLY Intercompany Note will be payable by offsets against
tax sharing payments under the Tax Sharing Agreement (as defined below) and
half of any dividends received on the Series B Preferred Stock.
ARI files a consolidated federal income tax return with ERLY. ARI and ERLY
entered into a Tax Sharing Agreement on May 25, 1993 which was amended in
Page 16<PAGE>
connection with the Transaction (as amended, the "the Tax Sharing Agreement"),
pursuant to which ARI will pay to or receive from ERLY the amount of income
taxes currently payable or refundable computed as if ARI filed its annual
return as a separate company. All payments owed by ARI under the Tax Sharing
Agreement shall be offset against ERLY's principal and interest obligations
under the 15% ERLY Intercompany Note.
ARI entered into a Management Agreement with ERLY on May 25, 1993, which was
amended in connection with the Transaction, pursuant to which ERLY provides to
ARI certain marketing, operating and management services, including global
business planning, new product supply development, new market development
services and assistance in insurance, human resources, finance and employee
benefits. Other than Gerald D. Murphy, none of Mr. Adamss, officers or
directors of ERLY rendering such services are officers or directors of ARI.
Mr. Murphy provides services under this Management Agreement to ARI for which
ERLY is compensated. In exchange for such services, ARI pays ERLY a monthly
management fee of $80,000. Payment of the management fees will be permitted
under the indenture for the Mortgage Notes only if ARI has paid all payments
of principal, premium, if any, and interest due on the Mortgage Notes at the
time payment of such fees is made and ARI has met certain other cash flow
requirements. Any management fees not paid will be deferred until such time
as the described events prohibiting payment no longer exist. The term of the
Management Agreement is two years with an automatic two-year renewal unless
one party notifies the other that it wishes to terminate the Management
Agreement. For the year ended March 31, 1996, no management fees were incurred
by agreement between the Company and ERLY. The accrual for such fees was
resumed on April 1, 1996. During the years ended March 31, 1995 and 1994, ARI
incurred and paid $923 thousand and $1.1 million, respectively.
At March 31, 1996 and 1995, amounts due from ERLY are summarized as follows:
March 31,
----------------------
1996 1995
--------- ---------
(in thousands)
15% loan balance $10,500 $
Accrued interest - 15% loan 949
6% loan balance 13,346 11,901
--------- ---------
$24,795 $11,901
========= =========
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP, independent public accountants, served as
ARI's auditors for the fiscal year ended March 31, 1996. Deloitte & Touche
LLP, or one of its predecessors, has served as ARI's auditors since its
inception in October 1987 and served as ARI Cooperative's auditors since 1978.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting and will be available to respond to appropriate questions. He will
also be afforded an opportunity to make a statement if he so desires.
Page 17<PAGE>
PROPOSALS BY SHAREHOLDERS
Any shareholder wishing to present a proposal for consideration at the next
Annual Meeting of Shareholders, anticipated to be held no later than September
30, 1997, must submit the proposal in sufficient time so that it may be
received by ARI at its principal executive offices at the address set forth on
the cover of the Proxy Statement at least 120 days before August 30, 1997, the
anticipated mailing date of the Proxy Statement and Proxy for the 1997 Annual
Meeting of Shareholders, to be included in the proxy statement and proxy
relating to that meeting. Such proposal must also comply with the
requirements as to form and substance established by applicable laws and
regulations.
OTHER BUSINESS
The management of ARI knows of no other business that will be brought before
the Annual Meeting. If, however, any other matters are properly presented, it
is the intention of the persons named in the accompanying form of proxy to
vote the shares covered thereby in their discretion as they may deem
advisable.
By order of the Board of Directors
Robin L. Mann
Assistant Secretary
Houston, Texas
August 30, 199
Page 18<PAGE>
AMERICAN RICE, INC
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of American Rice, Inc. ("ARI") hereby appoints
Robin L. Mann and Joseph E. Westover as proxies, each with the power to act
without the other and with full power of substitution for the undersigned to
vote all shares of Common Stock and Preferred Stock of ARI that the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders of ARI to be held on September 26, 1996, or at any
adjournment(s), as follows:
(1) ELECTION OF { }FOR all nominees listed below { }WITHHOLD AUTHORITY to
DIRECTORS except as marked to the vote for the nominees
contrary below listed below
Nominees: S. C. Bain, Jr. John M. Howland Douglas A. Murphy
William H. Burgess Richard N. McCombs Gerald D. Murphy
George E. Prchal
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- -----------------------------------------------------------------------------
(2) With discretionary authority on any matter that may properly come before
the meeting.
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED,
WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES AND FOR
PROPOSAL 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
DATED: , 1996
--------------
- --------------------------------
Signature
- --------------------------------
Signature, if held jointly
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO VOTE THEREON.
