AMERICAN RICE, INC.
411 N. Sam Houston Parkway E.
Suite 600
Houston, Texas 77060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 30, 1997
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, 411 N. Sam Houston Parkway E., Houston, Texas 77060, on Tuesday,
October 30, 1997 at 10:00 a.m., Central Standard Time, for the following
purposes:
1. To vote to elect five 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 September 12, 1997
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.
The Board of Directors of the Company has fixed the number of directors at
five from the date of the Annual Meeting of Shareholders of ARI. The Board of
Directors may increase the number of directors up to seven at any time after
the date of the Annual Meeting of Shareholders of ARI and may fill such
vacancies created by any such increase in the numbers of directors, all in
accordance with the by-laws of the Company. Any directors appointed by the
Board of Directors to fill any vacancies created by an increase in the number
of directors will stand for election by the Shareholders at the 1998 Annual
Meeting of Shareholders of the Company. It is anticipated that the Board of
Directors will increase the number of directors to seven some time after the
Annual Meeting of Shareholders of ARI, however no candidates for such position
have been identified by the Board of Directors of the Company at this time.
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,
Houston, Texas Richard N. McCombs
October 10, 1997 Secretary
<PAGE>
AMERICAN RICE, INC.
411 N. Sam Houston Parkway E.
Suite 600
Houston, Texas 77060
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To be held October 30, 1997
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
Tuesday, October 30, 1997 (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 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 October 13, 1997 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 September 12,
1997 (the "Record Date"). As of the Record Date, there were 2,443,861 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
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-
Page 1<PAGE>
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 August 22, 1997
(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(3) 81%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(3) 100
Suite 1800 Series B Preferred Stock 2,800,000(3) 100
Los Angeles, CA 90024
Gerald D. Murphy, Chairman(1) Common Stock 7,155,554(3) 81%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(3) 100
Suite 1800 Series B Preferred Stock 2,800,000(3) 100
Los Angeles, CA 90024
Douglas A. Murphy, Director
President and Chief
Executive Officer Common Stock 7,155,554(3) 81%
411 N. Sam Houston Parkway East Series A Preferred Stock 777,777(3) 100
Suite 600 Series B Preferred Stock 2,800,000(3) 100
Houston, TX 77060
Kennedy Capital Management, Inc.(2) Common Stock 7,155,554(3) 81%
10829 Olive Blvd. Series A Preferred Stock 777,777(3) 100
St. Louis, MO 63141 Series B Preferred Stock 2,800,000(3) 100
S.C. Bain, Jr., Director Common Stock 22,213(4) -
P.O. Box 250
Bunkie, LA 71322
William H. Burgess, Director - - -
550 Palisades Drive
Palm Springs, CA 92262
John M. Howland, Director - - -
24010 Northcrest Dr.
Spring, TX 77389
Richard N. McCombs, Director - - -
Executive Vice President and
Chief Financial Officer
411 North Sam Houston Parkway East
Suite 600
Houston, TX 77060
George E. Prchal, Director - - -
P.O. Box 9324
The Woodlands, TX 77387
</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>
Lee Adams Common Stock 283 -
Senior Vice President
411 North Sam Houston Parkway East
Suite 600
Houston, TX 77060
Bill J. McFarland - - -
Senior Vice President
411 North Sam Houston Parkway East
Suite 600
Houston, TX 77060
John S. Poole - - -
Senior Vice President
411 North Sam Houston Parkway East
Suite 600
Houston, TX 77060
All directors and executive
officers as a group (13 persons) Common Stock 7,178,050 81%
</TABLE>
(1) Gerald D. Murphy, Chairman of the Board of ARI and ERLY, is the record
holder of 952,502 shares of ERLY common stock. Shares of ERLY common stock
beneficially owned by Gerald D. Murphy include 612,043 shares of ERLY common
stock indirectly owned by him which are 1) owned directly by his son Douglas
A. Murphy, President of the ARI and ERLY, and 2) 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.
(2) Kennedy Capital Management, Inc. owns 585,518 shares of ERLY common stock
representing approximately 11.2% of the outstanding shares of ERLY common
stock based on a Schedule 13G filed February 7, 1997 with the Securities and
Exchange Commission. The filer is an investment advisor with discretionary
accounts for investment purposes. Filer indicated that it has sole dipositive
power of the entire 585,518 shares and sole voting power for 336,080 of the
shares.
(3) ERLY has sole voting and dipositive 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.
(4) Mr. Bain has sole voting and dispositive power with respect to 1,482
shares and shared voting and dispositive power with respect to 20,731 shares.
Gerald D. Murphy and Douglas A. Murphy have pledged a substantial number of
shares of Common Stock of ERLY they own as collateral for personal loans,
including loans related to their acquisition of a building partially leased by
American Rice, Inc. See "Certain Transactions."
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
Five 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
Page 3<PAGE>
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.
The Board of Directors of the Company has fixed the number of directors at
five from the date of the Annual Meeting of Shareholders of ARI. The Board of
Directors may increase the number of directors up to seven at any time after
the date of the Annual Meeting of Shareholders of ARI and may fill such
vacancies created by any such increase in the numbers of directors, all in
accordance with the by-laws of the Company. Any directors appointed by the
Board of Directors to fill any vacancies created by an increase in the number
of directors will stand for election by the Shareholders at the 1998 Annual
Meeting of Shareholders of the Company. It is anticipated that the Board of
Directors will increase the number of directors to seven some time after the
Annual Meeting of Shareholders of ARI, however no candidates for such position
have been identified by the Board of Directors of the Company at this time.
NOMINEES
Served as a
Name Age Current Position with ARI Director Since
- --------------- --- ------------------------------- -------------
Gerald D. Murphy 69 Director, Chairman of the Board April 1988
Douglas A. Murphy 41 Director, President and October 1990
Chief Executive Officer
Richard N. McCombs 51 Director, Executive Vice President June 1993
- Finance & Administration,
Secretary and Treasurer
S. C. Bain, Jr. 48 Director October 1987
William H. Burgess 80 Director April 1988
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 from 1986 until the Comet Acquisition in 1993 and
has served as President, Chief Executive Officer and Chairman of the Board of
ERLY since 1964. He also serves as a director of Pinkerton's, Inc., a security
and investigation services firm.
Douglas A. Murphy has served as President 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.
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 in Bain Farms since April 1988.
Page 4<PAGE>
William H. Burgess has been a director of ARI since 1988 and a director of
ERLY since 1976. In addition, he is a business consultant and the Chairman of
CMS Digital, Inc., a privately held company. From 1978 to 1986 Mr. Burgess was
Chairman of International Controls Corp., an internationally diversified
manufacturing company listed on the New York Stock Exchange.
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 56 Senior Vice President
Bill J. McFarland 60 Senior Vice President
John S. Poole 51 Senior Vice President
C. Bronson Schultz 55 Vice President
Joseph E. Westover 52 Vice President
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.
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 of ARI since June 1993 and
served as President of Comet from August 1990 until its liquidation after the
Comet 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 CAM
from 1986 to 1988.
Joseph E. Westover has served as Vice President and Controller of ARI since
January 1994. From 1983 until 1993, he served as Assistant Vice President of
Finance with ARI and the ARI Cooperative and in various positions with the ARI
Cooperative from 1977 to 1983
Page 5<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of ARI held three scheduled meetings during the year
ended March 31, 1997. 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 that 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. During
the year ended March 31, 1997, Mr. Douglas A. Murphy served as Chairman of
this Committee, and Messrs. John M. Howland and Gerald D. Murphy were
Committee members. During the fiscal year ended March 31, 1997, 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, 1997, 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, 1997, this
committee held one meeting
Page 6<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information for the years ended March 31, 1995
to 1997, 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 sation(3)
- ------------------------------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy 1997 $234,000 $ 43,665 $6,784 $10,725 $6,000
Director, President and 1996 225,000 100,000 5,000 - 5,319
Chief Executive Officer 1995 207,000 69,552 5,791 17,890 8,914
Gerald D. Murphy 1997 189,750 56,535 7,542 17,025 6,000
Director 1996 178,750 100,000 6,630 - 5,609
Chairman of the Board 1995 170,500 57,288 7,233 14,736 9,060
Bill J. McFarland 1997 210,000 29,325 3,893 7,425 6,000
Senior Vice President 1996 204,000 - 5,555 - 4,002
1995 198,000 55,400 4,075 4,263 7,500
John S. Poole 1997 176,000 24,613 6,876 6,187 6,000
Senior Vice President 1996 171,000 5,000 5,356 - 3,392
1995 165,000 46,200 6,509 11,886 7,500
Lee Adams 1997 171,000 23,275 11,928 5,775 6,000
Senior Vice President 1996 166,000 - 9,815 - 3,252
1995 160,000 44,800 9,100 11,524 6,017
</TABLE>
(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 sation(3)
- ------------------------------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy 1997 $25,000 $45,000 $ - $ 82,500 $ -
1996 25,000 - - - -
1995 23,000 23,728 - 18,968 -
Gerald D. Murphy 1997 146,250 45,000 - 82,500 -
1996 146,250 - - - -
1995 139,500 62,872 - 29,038 -
</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 Company contributions to the ERLY Employees' Profit
Sharing Retirement Plan.
Page 7<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 1997.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1997 (1)
and March 31, 1997 Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-The-Money Options
at March 31, 1997 at March 31, 1997(2)
Name Exercisable Unexercisable Exercisable Unexercisable
--------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas A. Murphy 84,186 - $394,832 -
Gerald D. Murphy - - - -
Bill J. McFarland 33,674 - 157,931 -
John S. Poole - - - -
Lee Adams - - - -
</TABLE>
(1) No options were exercised in fiscal 1997 and no stock appreciation rights
were granted.
(2) Market value of underlying ERLY securities at March 31, 1997 ($8.25),
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 ERLY's common stock on the date of
exercise. Any ERLY common stock acquired through exercising these options
cannot be sold for a period of one year after the exercise date.
Employment Agreements. The Company has outstanding employment agreements with
Messrs. Gerald D. Murphy, Chairman, and Lee Adams, Senior Vice President
effective June 1997 and September 1987, respectively. The agreements provide
that, as employees, Messrs. Murphy and Adams 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 the employee, 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 agreements, such benefits are provided unless termination is both,
at the option of the employee 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 ERLY in the case of Mr.
Murphy) or (ii) during any consecutive years, the individuals comprising a
majority of the Board of Directors of ARI (or ERLY in the case of Mr. Murphy)
at the beginning of such period shall cease to constitute a majority.
Generally, benefits payable under the employment agreements include:
continuation of the employee's base salary, continuation of the employee's
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 the employee by
reason of his serving as an officer. In consideration of these benefits,
Messrs. Murphy and Adams agreed not to compete with ARI or to disclose any
confidential information of ARI during the five-year period during which they
are to receive such benefits. If ARI or its successor fails to make timely
payments as required by the employment agreements, liquidated damages are set
at treble the amount of such untimely payments. Certain amounts that may be
paid under the employment agreement upon termination may be deemed to be
Page 8<PAGE>
"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, 1997, 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 of Directors. 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. The Company also pays for outside Board of Directors' members to
participate in the Company's group insurance plan for medical benefits. During
the fiscal year ended March 31, 1997, Messrs. John M. Howland and George
Prchal each received $100,000 for certain international marketing services
provided to ARI. See "Certain Transactions."
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 Gerald
D. Murphy, Chairman, 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 30.0% 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 3.9% 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.
Certain Transactions
Transactions with Management. 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 by a limited partnership in which
they own a combined interest of 25%. A trust established for the benefit of
Douglas A. Murphy's heirs and administered by a third party administrator owns
an additional 60% interest in the partnership. 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 has received an opinion from Grubb and Ellis Company, a real
estate firm doing business in Houston, that ARI's rental rates are comparable
to, if not better than rates for similar office space in such area. ARI's
Page 9<PAGE>
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.
During the fiscal year ended March 31, 1997, Messrs. John M. Howland and
George Prchal, Directors of ARI, each received $100,000 for certain
international marketing services provided to ARI.
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. ARI has entered into a number of transactions in the
ordinary course of business with ERLY and its affiliates.
At March 31, 1997 and 1996, amounts due from ERLY are summarized as follows:
March 31,
----------------------
1997 1996
--------- ---------
(in thousands)
15% loan balance $ 9,500 $10,500
Accrued interest - 15% loan 1,705 949
6% loan balance 12,961 13,346
--------- ---------
$24,166 $24,795
========= =========
Net proceeds of $10.5 million of the $100 million notes issued in August,
1995, were used to make a 15% loan to ERLY which is due in 2001. Under the
terms of the 15% loan, ERLY is obligated to pay principal and interest
annually by offsetting payments due ERLY from ARI under the tax sharing
agreement. Such offsets shall be applied first to reduce principal (up to $.5
million), then to pay interest accrued and payable, and then to further reduce
outstanding principal. ERLY will be responsible for paying cash to pay
principal to the extent such offsets are less than $.5 million and may defer
payment of interest to the extent such offsets are not available for such
payment. The terms of this 15% loan may not be modified without the consent
of a majority of the holders of the Mortgage Notes. As security for payments
due on the 15% loan, ERLY has issued a warrant equivalent to 7.5% of the then
issued and outstanding voting common stock of ERLY, exerciseable at $0.01 per
share after any payment default, which warrant will be reduced proportionately
by the amount of all principal payments made on the 15% loan and canceled
automatically upon payment in full of the principal of the 15% loan.
In fiscal year 1994, intercompany payables and receivables were netted,
resulting in an obligation owed to ARI by ERLY that is reflected in a note
receivable from ERLY bearing an interest rate of 6% and maturing in 2002. In
addition, all intercompany transactions not settled quarterly accrue interest
Page 10<PAGE>
at 6%. The note is payable out of one half of dividends received by ERLY on
the Series B Preferred Stock until the 15% loan to ERLY is paid in full, at
which time the 6% note will be payable by offsets against tax sharing
agreement payments due ERLY from ARI and one-half of any dividends received on
the Series B Preferred Stock.
In fiscal year 1994, ARI entered into a management agreement between ERLY and
ARI whereby ERLY acts as ARI's agent for the purpose of providing certain
marketing, operating and management services to ARI. In exchange for such
services, ARI is to pay ERLY a monthly management fee of $80 thousand. For the
years ended March 31, 1997 and 1996, no management fees were incurred by
agreement between the Company and ERLY. The accrual for such fees was resumed
on April 1, 1997.
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 ERLY 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. The Company
and ERLY were named as defendants in the lawsuit allegedly because of their
efforts to obtain restraining orders to prevent threatened foreclosures on the
ERLY Common Stock pledged as collateral by Gerald D. Murphy, which threatened
ARI's Note financing. The lawsuit also alleges certain other activities by the
Company and ERLY, including knowing participation in breaches of fiduciary
duties, fraud, and civil conspiracy with Gerald D. Murphy and Douglas A.
Murphy. 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 order to minimize legal expenses, the Company, ERLY,
Gerald D. Murphy and Douglas A. Murphy are using common legal counsel in this
matter. Gerald D. Murphy has agreed to pay up to 50% of such expenses after
any insurance recoveries as determined by the members of the board of
directors not a party to the lawsuit. On September 9, 1997, the jury in this
litigation returned two alternative verdicts in favor of the plaintiffs and
the plaintiffs were required to elect between those verdicts. The plaintiffs
elected the jury's tort claim verdict in the amount of $9,657,000, rendered
jointly and severally against Gerald D. Murphy, Douglas A. Murphy, the
Company, and ERLY, along with separate awards of punitive damages against
Gerald D. Murphy of $3,000,000, Douglas A. Murphy of $500,000, the Company of
$100,000, and ERLY of $100,000. The defendants intend to file motions before
the trial court for judgment in defendants' favor not withstanding the verdict
and for a reduction of the amounts awarded by the jury based, in part, on the
absence of evidence to support those amounts. In the event any judgment is
entered against the Company or ERLY, the Company and ERLY intend to appeal
that judgment. At this time, prior to the trial court's rulings on the
defendants' expected motions to set aside or reduce the verdicts, the Company
cannot state whether or not the outcome of this litigation may have a material
impact on its or ERLY's financial condition. It may be some time before an
actual judgment is entered.
On July 24, 1997, The Powell Group, a diversified holding company based in
Baton Rouge, Louisiana (the "Powell Group"), through its wholly owned
subsidiary, Farmers Rice Milling Company, Inc., a Louisiana corporation
("Farmers Rice") filed a shareholder derivative complaint purportedly on
behalf of the Company and ERLY against Gerald D. Murphy, Douglas A. Murphy,
the Company, and ERLY in the United States District Court, Central District of
California. Farmers Rice recently amended the complaint to add all the other
Page 11<PAGE>
directors of the Company and ERLY as defendants. 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 ERLY 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 ERLY. Both the Company and ERLY are nominal defendants with the
lawsuit being brought on behalf of the Company and ERLY 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, ERLY, 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. Gerald
D. Murphy and Douglas A. Murphy believe they have valid defenses against the
allegations in the complaint. Management believes that the complaint's sole
purpose is tactical, namely, to attempt to malign current Management in an
effort by the Powell Group to take control of ERLY, and subsequently, the
Company. The Powell Group has also initiated its own proxy solicitation of
ERLY shareholders, which, in part, seeks election of nominees selected by the
Powell Group at ERLY's annual shareholders meeting on October 17, 1997. None
of the Powell Group nominees are current ERLY directors.
The Company has also been named as a co-defendant with Messrs. John M. Howland
and George E. Prchal in a lawsuit filed in February 1997 in the U.S. District
Court for the Southern District of Texas by Rice Milling & Trading
Investments, LTD., an Isle of Man Company ("RMTI"). In 1994, ARI entered into
an agreement with RMTI for processing the Company's rice through RMTI's
facility in Jeddah, Saudi Arabia. Messrs. Howland and Prchal were officers of
RMTI through January 1997, and prior to October 1993 they were officers of
ARI. Messrs. Howland and Prchal have been directors of ARI since October 1993.
They are not standing for re-election to the board of directors in this
election. In January 1997, RMTI ceased shipping ARI's rice through its Jeddah
facility and terminated the employment of Messrs. Howland and Prchal. The
lawsuit alleges among other things ARI failed to perform under the terms of
the agreement and Messrs. Howland and Prchal breached their fiduciary duties
to RMTI. On April 21, 1997, ARI obtained a preliminary injunction from the
U.S. District Court for the Southern District of Texas ordering RMTI to desist
and refrain from purchasing rice of U.S. or Vietnam origin from any supplier
other than ARI and from introducing and/or marketing rice of U.S. and Vietnam
origin in Saudi Arabia targeted against ARI's U.S. origin and Vietnam origin
rice. In October 1997, ARI voluntarily terminated this injunction.
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 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 3.3% 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
Page 12<PAGE>
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 from Watson Wyatt Data Sources for Survey of
Top and Middle Management. 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 indices used in "Stock Price
Performance."
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 for ERLY Common
Stock 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.
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.
Page 13<PAGE>
Compensation of the Chief Executive Officer in 1997
In considering the amount of compensation for fiscal year 1997 for Mr. Douglas
A. Murphy, Chief Executive Officer, the Compensation Committee and the Board
of Directors considered the improved financial results reported by the Company
in 1997 and 1996, 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.
Mr. Murphy's base salary increased from $225,000 in 1996 to $234,000 in 1997,
a 4% increase. Mr. Murphy also received a cash bonus of $43,665 and a stock
bonus of $10,725 for 1997. These bonuses were paid in recognition of the
favorable financial results recorded by the Company's operating entities 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."
Compensation Committee
American Rice, Inc.
Gerald D. Murphy
S.C. Bain, Jr.
William H. Burgess
Page 14<PAGE>
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.
[Stock Price Performance Graph]
The data presented in tabular form are as follows:
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
American Rice, Inc. $100 $255 $514 $250 $216 $227
S & P Foods Stocks $100 $109 $101 $120 $151 $190
NASDAQ U. S. Stocks $100 $115 $124 $138 $187 $208
Page 15<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP has been the Company's independent certified public
accountants since the inception of the Company in 1987 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 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.
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 August 21, 1998.
By order of the Board of Directors
Richard N. McCombs
Secretary
Houston, Texas
October 10, 199
Page 16<PAGE>
AMERICAN RICE, INC.
SHAREHOLDERS' PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints DOUGLAS A. MURPHY and JOSEPH E. WESTOVER to
act as proxies, each 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 and Preferred Stock of American Rice, Inc. held on
record by the undersigned on September 12, 1997, at the Annual Meeting of
Shareholders of ARI to be held on October 30, 1997 or at any adjournment(s)
thereof.
1. ELECTION OF DIRECTORS: Election of S. C. Bain, Jr., Douglas A. Murphy,
William H. Burgess, Richard N. McCombs, and Gerald D. Murphy.
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.)
- -----------------------------------------------------------------------------
2. 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.)
(Continued from reverse side.)
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.
BY EXECUTING AND DATING THIS PROXY, ALL PREVIOUSLY EXECUTED PROXIES
EXECUTED BY THE UNDERSIGNED ARE HEREBY REVOKED.
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 officer. If a
partnership, please sign in partnership
name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
