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[LOGO OF DUCK HEAD APPAREL COMPANY, INC.}
November 2, 2000
Dear Duck Head Apparel Shareholder:
Yesterday, Duck Head announced some significant and exciting news of which
you should be aware before our November 8 annual meeting. The Company will be
taking a series of steps for the purpose of maximizing value for its
shareholders. These include:
. retaining a nationally-recognized investment banking firm to explore all
strategic alternatives for Duck Head and to make a recommendation to a
newly-formed special committee of the Board.
. commencing a share repurchase program for up to $3 million of its
outstanding shares. The timing and other details about the repurchase
program will be determined shortly.
. amending its shareholder rights plan to provide that the rights will
expire on March 31, 2001, unless redeemed earlier by the Company.
We have taken these steps because we believe that the Company's current
stock price does not reflect the Company's underlying value and we believe
these steps will help us obtain our goal of maximizing value for all of our
shareholders. Retaining an investment banking firm with significant experience
in our industry will be an important step in determining what strategic
alternatives may be available to realize increased value for your shares. In
addition, we believe a repurchase of our shares is a good investment for the
Company and may provide additional liquidity for shareholders. Finally, the
decision to terminate the rights plan by March 31, 2001 will mean that
shareholders will continue to have protection from attempts to acquire control
of the Company at unfair prices for the period of time that we believe will be
needed for the Board to explore the Company's strategic alternatives. Of
course, the rights plan can be terminated earlier if doing so will enhance
shareholder value.
IMPORTANT BULLETIN!
As we were going to press with this letter we learned that
Institutional Shareholder Services (ISS) has recommended that its
clients who are Duck Head shareholders vote FOR management's
nominees on the WHITE proxy card and reject the Rainsford slate.
ISS is the country's leading, independent proxy consulting
firm. It advises several hundred of the largest banks, pension
funds, money management firms and other major institutional
investors in the U.S. on how to vote proxies in contested
elections.
ISS's analysis states, "Duck Head's first quarter results
refute some of Mr. Rainsford's more dire predictions, and bear out
management's assertions that the incumbent board is successfully
putting the company on a path to profitability. We are not
convinced that shareholders would be well served by replacing the
entire board and putting the company immediately "up for auction'
at a time when Mr. Rainsford concedes Duck Head's stock price is
extraordinarily weak. More beneficial to shareholders, we believe,
would be continued pursuit of the company's turnaround while the
company explores sale opportunities in a measured, reasonable way
designed to yield the greatest value rather than the most
immediate exit strategy."
REJECT THE RAINSFORD SLATE.
We regret that we must send you another letter about Bettis Rainsford's
proxy contest to unseat the Duck Head Board. We know that you have received or
will receive multiple mailings and telephone calls from both Rainsford and us.
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However, in our opinion, Rainsford has resorted to a campaign of half-
truths and distortions, as revealed in his October 30 letter to you. We
believe Rainsford's letter contains a number of gross inaccuracies and
mischaracterizations of the truth--all in the hope of winning your vote. We
cannot let these unfounded charges go unanswered.
RAINSFORD DISTORTS EXPLORATORY CONTACTS WITH
HAGGAR AND BREACHES HIS FIDUCIARY DUTIES.
As you now know, the Board, in its continuing effort to maximize the value
of your shares, recently embarked on exploratory discussions with Haggar Corp.
about a possible business combination. What Rainsford has not told you is the
following:
. Haggar made an opening proposal which would have yielded less than $3
per share -- representing less than half of the book value of the
Company. Your Board, after considering the proposal, responded by
indicating Haggar's opening proposal was inadequate and asked Haggar to
reconsider its proposal.
. The Board's discussions with Haggar were confidential, but Rainsford
prematurely disclosed these opening discussions in breach of his
fiduciary duties as a director and after Haggar specifically refused to
give him permission to do so. Rainsford's action may have jeopardized
the Company's interests in its discussions with Haggar or any other
interested third party. Is Rainsford the type of director you want in
control of your Company and your shares?
. Rainsford has pledged a majority of his Duck Head shares and the bulk of
his Delta Apparel and Delta Woodside shares as collateral for personal
loans. He has every incentive to jump immediately to cash out at an
opening bid. Indeed, Rainsford's letter seems to suggest that the Haggar
proposal may have been adequate. If you elect Rainsford's slate, we
believe that a sale at such a "fire sale" price is a real possibility.
. In contrast, members of the current Board and related entities own
approximately 22% of the Company's shares. If the Company's Chairman Bob
Rockey and its new President Bill Roberti exercise the million share
option this percentage would increase to approximately 45%. Remember--
the current Board includes some of the Company's largest shareholders
and has every reason to accept an offer to sell the Company at a fair
price. Our interests are fully aligned with yours.
DECIDE FOR YOURSELF IF RAINSFORD WILL ACT IN YOUR BEST INTERESTS.
In his October 30 letter, Rainsford refers to what he calls "The Board's
Ill-Advised Spin Off Strategy."
We believe Rainsford is unhappy because the Delta Woodside Board rejected
in the summer of 1999 various proposals made by him for how the spin-offs
should have occurred--proposals which would have benefited Rainsford
personally at your expense.
Here's what you should really know about Rainsford's actions as a Delta
Woodside director:
. Rainsford proposed a number of alternative spin-off scenarios in which
he tried to cut a far more favorable deal for himself than would have
been available to the Company's other shareholders.
. In a memo dated July 22, 1999, from Rainsford to other members of the
Delta Woodside Board, Rainsford urged the Board to adopt a
"disproportionate spin-off" in which he would receive approximately $18
million cash (representing a per share price for Delta Woodside stock
that was more than three times its closing price on July 22, 1999) and
51% of Delta Apparel's stock with the other shareholders receiving only
Delta Woodside, Duck Head and (for some shareholders) Delta Apparel
stock--but no cash.
. In a second memo dated August 30, 1999, Rainsford wrote, "I have put
together another proposal "Disproportionate Spin-Off Scenario VI' ", in
which Rainsford suggested that the spin-offs provide him with
approximately $4 million in cash (again representing a per share price
for Delta Woodside stock far in excess of its trading price) and the
public shareholders with only stock.
. Rainsford shared confidential Board information with an outsider without
authorization from the Board.
. As a result of Rainsford's self-serving disproportionate spin-off
proposals and his revelation of confidential board information to an
outsider, the board told Rainsford it had lost confidence in him, and
Rainsford left his executive position at Delta Woodside in October 1999.
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Your Board--in sharp contrast to Rainsford--was and is committed to
treating all shareholders equally. After considering Rainsford's self-dealing
spin-off proposal, the Delta Woodside Board rejected Rainsford's proposals
because they so clearly favored his personal interests over those of all other
shareholders.
In light of the above facts, ask yourself what disproportionate deal
Rainsford and his hand-picked Board might implement if his nominees are given
control of your Company.
CURRENT MANAGEMENT HAS THE NECESSARY EXPERIENCE AND INCENTIVES TO MAXIMIZE THE
VALUE OF YOUR SHARES.
Bob Rockey, your Chairman and CEO, and Bill Roberti, your new President
have extensive and wide-ranging experience in the industry. Mr. Rockey's
experience includes almost 20 years with Levi Strauss & Co., including service
as President of Levi Strauss North America. Mr. Roberti has been CEO of Plaid
Clothing, Inc. and President and CEO of Brooks Brothers, Inc. This is the kind
of management team you want running your company.
In contrast, Rainsford has disclosed no details about how or by whom Duck
Head would be managed if his slate were elected.
As you know, Mr. Rockey was originally granted an option to acquire up to
one million shares at an exercise price equal to $10. The option was
subsequently amended to change the exercise price to the average market price
of Duck Head stock during the last six months of this year. To help attract Mr.
Roberti to the Company, Mr. Rockey has agreed to transfer one quarter of the
option to Mr. Roberti.
We have told you that we believe Rainsford's attacks on the option were
unfounded. Now ISS has reviewed the option and reached the same conclusion.
Specifically, ISS has said:
"The issue of Mr. Rockey's million-share option is also a nonissue,
in our judgment. The original spirit of Mr. Rockey's option appears to
have been to grant him the ability to acquire one million shares at or
near Duck Head's projected fair market value. When subsequent events
made it clear that Duck Head would trade at a price far less than
$10.00 per share, it was reasonable for the board to amend the option
to bring the exercise price in line with Duck Head's post-spin off
stock price. To retain a $10.00-per-share exercise price would have
put the option so far underwater as to render it essentially
valueless, both as an award and as an incentive to Mr. Rockey. To
preserve the fundamental incentive value of the option, it was
reasonable for the board to make the present amendment."
As recognized by ISS, the options give Messrs. Rockey and Roberti
significant incentive to maximize the value of your shares.
RAINSFORD DISTORTS THE TRUTH ABOUT OUR SHAREHOLDER RIGHTS PLAN.
Rainsford's letter also criticizes the Company's shareholder rights plan or
"poison pill"--a customary way to protect shareholders from raiders seeking to
acquire shares at "fire sale" prices and to capture the value of the target for
themselves.
Shareholder rights plans ensure that the Board will have the opportunity to
negotiate on behalf of the shareholders with a takeover candidate. As noted
above, we intend to amend the rights plan so that it will terminate no later
than March 31, 2001. This will provide protection from inadequate offers while
the board has time to consider strategic alternatives.
. Rainsford characterizes the Duck Head rights plan as a "dead hand pill."
This is simply not true. To redeem a dead hand pill, generally one or
more directors who were in office when the pill was adopted, or their
hand-picked successors, must still be in office when the pill is to be
redeemed, and a majority of these "continuing directors" must agree to
redeem the pill. Duck Head's rights plan does not require this.
. Consider that without the Rights Plan the Rainsford-Knight group could
have continued to acquire shares of Duck Head stock allowing them to
obtain control of your Company at low-ball prices rather than the fair
prices usually paid to shareholders protected by a rights plan.
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. Your Board has no intention of letting the rights plan interfere with a
full and fair offer for ALL shares. However, we do not believe that
allowing any single shareholder or group of shareholders to accumulate
control through open market purchases at NO PREMIUM will enhance your
prospects for realizing the full value of your investment.
We urge you to see Rainsford's misrepresentation of our rights plan and
his position and actions with respect to the spin-offs for what we believe
them to be: simply ploys to distort the truth in order to win your vote in
this proxy contest.
Don't be fooled! Rainsford is seeking to take control of your Company
without offering to acquire your shares, let alone paying the premium price
normally associated with a change in control through stock acquisitions.
TIME IS VERY SHORT. VOTE YOUR WHITE PROXY TODAY!
Reject Rainsford's attempt to win control of your Board by distorting the
facts for his benefit. All you need to do to support management's nominees is
to vote the enclosed WHITE proxy and to ignore any proxy materials from
Rainsford and his nominees.
We believe the steps we have taken and are committed to taking in your
behalf will protect and enhance shareholder value both now and in the future.
We are receptive to new ideas, and we are willing to pursue new initiatives
and consider sensible strategic alternatives. Any abrupt changes in Duck
Head's Board or management would only jeopardize many promising business
opportunities for your Company and would not do anything to maximize
shareholder value.
We appreciate your support of Duck Head and its nominees for election to
the Board. On behalf of Duck Head's nominees,
Sincerely,
/s/ Robert D. Rockey
Robert D. Rockey
Chairman and Chief Executive Officer
IMPORTANT
. Please sign, date and return the enclosed WHITE proxy card today in
the postage-paid envelope provided.
. DO NOT sign any proxy card that you may receive from Bettis Rainsford,
even as a protest vote. If you return the proxy card, even as a vote
"against" the Rainsford nominees, it may revoke your previous vote for
our nominees. Only the latest dated proxy card counts!
. If you have already returned a Rainsford proxy card, you may revoke
your previous proxy by signing, dating and returning a later dated
WHITE proxy card using the envelope provided.
If you have any questions regarding your proxy, or need assistance in
voting your shares, please call:
[LOGO OF MACKENZIE PARTNERS, INC]
156 Fifth Avenue
New York, New York 10010
Call Toll Free: 800-322-2885
