DELTA WOODSIDE INDUSTRIES, INC.
TAX INFORMATION FOR STOCKHOLDERS OF
DELTA WOODSIDE INDUSTRIES, INC.
On June 30, 2000, Delta Woodside Industries, Inc. ("Delta Woodside") distributed
pro rata to its stockholders of record as of June 19, 2000, all of the
outstanding shares of Delta Apparel, Inc. ("Delta Apparel") and all the
outstanding shares of Duck Head Apparel Company, Inc. ("Duck Head"). This
document contains the following information relating to this distribution of
Delta Apparel shares and Duck Head shares:
- A brief explanation of the Federal income tax implications for
Delta Woodside stockholders of the distribution.
- Worksheets that will help you complete some tax calculations.
BACKGROUND INFORMATION
-----------------------
Delta Woodside stockholders of record as of June 19, 2000 received on June 30,
2000 a distribution of one (1) Delta Apparel share and one (1) Duck Head share
for every ten (10) Delta Woodside shares owned on June 19, 2000. Cash has been
paid in lieu of any fractional Delta Apparel share and any fractional Duck Head
share. The fractional Delta Apparel shares and the fractional Duck Head shares
were aggregated and sold through an independent agent, with the net proceeds
being paid as appropriate to those entitled to a fractional share.
FEDERAL INCOME TAX INFORMATION
---------------------------------
In connection with the distribution, Delta Woodside received an opinion from
KPMG LLP that it is more likely than not that each of the Delta Apparel
distribution and the Duck Head distribution will qualify as tax-free under
Section 355 of the US Internal Revenue Code of 1986, as amended ("Code"). For
this purpose, the phrase "more likely than not" means that, in KPMG LLP's
opinion, if KPMG's conclusion is challenged by the IRS, based on all the facts
and circumstances, there is a greater than 50% chance of success that the
conclusions of KPMG LLP's opinion will be sustained on their own merit.
The opinion of KPMG LLP is not binding upon the IRS, any other tax authority or
any court. No assurance can, therefore, be given that a position contrary to
that expressed in the opinion of KPMG LLP will not be asserted by the IRS or any
other tax authority and ultimately sustained by a court of law.
If the Delta Apparel distribution and the Duck Head distribution qualify as
tax-free under Code Section 355, your receipt of Delta Apparel shares in the
Delta Apparel distribution and Duck Head shares in the Duck Head distribution is
tax-free for United States federal income tax purposes, except that you will be
taxed on any gain attributable to cash that you received in lieu of a fractional
share.
Cash, if any, received by you instead of a fractional share of Delta Apparel or
Duck Head will be treated as received in exchange for that fractional share.
You recognize gain or loss to the extent of the difference between your tax
basis in that fractional share and the amount received for that fractional
share, and, provided that fractional share is held as a capital asset, the gain
or loss will be capital gain or loss.
FOR FURTHER DETAILS WITH RESPECT TO THE FEDERAL INCOME TAX IMPLICATIONS OF THE
DISTRIBUTION OF THE DELTA APPAREL SHARES, PLEASE REFER TO THE MATERIAL UNDER THE
HEADING "THE DELTA APPAREL DISTRIBUTION - MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" IN THE INFORMATION STATEMENT OF DELTA APPAREL DATED JUNE 7, 2000.
FOR FURTHER DETAILS WITH RESPECT TO THE FEDERAL INCOME TAX IMPLICATIONS OF THE
DISTRIBUTION OF THE DUCK HEAD SHARES, PLEASE REFER TO THE MATERIAL UNDER THE
HEADING "THE DUCK HEAD DISTRIBUTION - MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
IN THE INFORMATION STATEMENT OF DUCK HEAD DATED JUNE 7, 2000.
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TAX BASIS ALLOCATION
----------------------
You are required to apportion the tax basis in your Delta Woodside shares
immediately before the distribution between the Delta Woodside shares retained
and the Delta Apparel shares and Duck Head shares received (including any
fractional share) in the distribution, with this apportionment to be made in
proportion to the shares' relative fair market values for Federal income tax
purposes immediately after the distribution. You can determine your tax basis
using the worksheets that follow.
It is necessary to determine your "tax basis" to calculate your net gain or loss
on the sale of any Delta Apparel fractional share or Duck Head fractional share
and on any sale you may make of any Delta Woodside shares, Delta Apparel shares
or Duck Head shares. The appropriate tax basis is then compared to the sale
price of that stock to determine your net gain or loss.
If you bought your shares (and did not acquire them as a gift or in a similar
fashion), "tax basis" refers to your cost of acquiring your shares of stock. If
you did not acquire your shares by purchasing them, your tax basis may be
determined by other rules. PLEASE CONSULT YOUR TAX ADVISER TO DETERMINE THE TAX
BASIS IN YOUR PRE-DISTRIBUTION DELTA WOODSIDE SHARES TO BE ALLOCATED.
If you acquired pre-distribution Delta Woodside shares at different times and
costs (including shares received through a dividend reinvestment plan), you will
need to calculate a separate tax basis for each group of Delta Woodside shares,
as well as the Delta Apparel shares and the Duck Head shares received in
connection with those Delta Woodside shares.
HOW TO CALCULATE YOUR TAX BASIS
------------------------------------
You can use the following worksheets to calculate the taxable gain or loss for
the cash received in lieu of any fractional Delta Apparel share or fractional
Duck Head share. In addition, stockholders who choose to sell any of their
Delta Woodside shares, Delta Apparel shares or Duck Head shares sometime in the
future will need to apply the same tax basis allocation to determine taxability
on any net gain or loss.
The trading prices of Delta Woodside shares, Delta Apparel shares and Duck Head
shares following the distribution may be used as reasonable indicators of the
relative fair market values of the Delta Woodside shares, the Delta Apparel
shares and the Duck Head shares. Based on the average of the high and low
prices at which Delta Woodside shares traded on the New York Stock Exchange
during the first four trading days after the distribution (July 3, 5, 6 and 7,
2000), and at which Delta Apparel shares and Duck Head shares traded on the
American Stock Exchange during the first four trading days after the
distribution (July 3, 5, 6 and 7, 2000), 57.14% of your pre-distribution tax
basis may be allocated to your Delta Woodside shares, 35.87% of your
pre-distribution tax basis may be allocated to your Delta Apparel shares
(including any fractional share) and the remaining 6.99% of your
pre-distribution tax basis may be allocated to your Duck Head shares (including
any fractional share).
In order to use the worksheets, you will need to know the original tax basis of
your pre-distribution Delta Woodside shares. If you acquired Delta Woodside
shares on more than one occasion, you will need to perform this computation
separately for each acquisition.
CONSULT YOUR TAX ADVISOR
---------------------------
The information in this document represents our understanding of existing
Federal income tax laws and regulations, and does not constitute tax advice. It
does not purport to be complete or to describe the tax consequences that may
apply to particular categories of stockholders. You should consult your own tax
adviser regarding the particular consequences to you of the distribution of
Delta Apparel shares and Duck Head shares, including the applicability and
effect of any state, local and foreign tax laws.
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WORKSHEETS
----------
Delta Woodside tax basis calculation
Calculate your new Delta Woodside per share tax basis as follows:
Original total tax basis $_________________
multiplied by x
Allocation ratio .5714
equals =
New total Delta Woodside tax basis $_________________
divided by \
Total number of your Delta Woodside
shares __________________
equals =
New Delta Woodside per share tax basis $_________________
Delta Apparel tax basis calculation
Calculate your Delta Apparel per share tax basis as follows:
Original total tax basis $_________________
multiplied by x
Allocation ratio .3587
equals =
Total Delta Apparel tax basis $_________________
divided by \
Total number of your whole Delta Apparel
shares received in the distribution plus any
----
fractional Delta Apparel share allocated to
you (remember the 1 for 10 ratio of Delta
Apparel shares for Delta Woodside shares) __________________
equals =
Delta Apparel per share tax basis $_________________
Delta Apparel fractional share tax basis
Calculate your Delta Apparel fractional share tax basis as follows:
Delta Apparel per share tax basis $_________________
multiplied by x
Delta Apparel fractional share sold __________________
equals =
Tax basis of Delta Apparel fractional
share sold $_________________
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Loss or gain from sale of Delta Apparel fractional share
Calculate your loss or gain from sale of Delta Apparel fractional share as
follows:
Amount of check for Delta Apparel
fractional share $__________________
less -
Tax basis of Delta Apparel fractional
share sold $__________________
equals =
Gain/loss from Delta Apparel fractional
share sale $__________________
Duck Head tax basis calculation
Calculate your Duck Head per share tax basis as follows:
Original total tax basis $_________________
multiplied by x
Allocation ratio .0699
equals =
Total Duck Head tax basis $_________________
divided by \
Total number of your whole Duck Head
shares received in the distribution plus any
----
fractional Duck Head share allocated to
you (remember the 1 for 10 ratio of Duck
Head shares for Delta Woodside shares) __________________
equals =
Duck Head per share tax basis $_________________
Duck Head fractional share tax basis
Calculate your Duck Head fractional share tax basis as follows:
Duck Head per share tax basis $_________________
multiplied by x
Duck Head fractional share sold __________________
equals =
Tax basis of Duck Head fractional
share sold $_________________
Loss or gain from sale of Duck Head fractional share
Calculate your loss or gain from sale of Duck Head fractional share as
follows:
Amount of check for Duck Head
fractional share $__________________
less -
Tax basis of Duck Head fractional
share sold $__________________
equals =
Gain/loss from Duck Head fractional
share sale $__________________
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HYPOTHETICAL EXAMPLE
--------------------
Assumptions for Hypothetical Example
--------
Original Shares Purchased 107
Purchase Price per Share $ 4.50
Total Cost Basis $481.50
--------
--------- -------- ---------
Delta Delta Duck Head
Woodside Apparel Apparel
--------- -------- ---------
DLW DLA DHA
Original Total Tax Basis $481.50 $481.50 $481.50
Allocation Ratio 57.14% 35.87% 6.99%
New Total Tax Basis $275.13 $172.71 $ 33.66
Number Of Shares 107.00 10.70 10.70
Tax Basis per Share $ 2.57 $ 16.14 $ 3.15
Fractional Share Basis
Tax Basis per Share $ 16.14 $ 3.15
Fractional Share Sold 0.70 0.70
Fractional Share Tax Basis $ 11.30 $ 2.21
Amount Received for Fractional Share* $ 6.18 $ 1.54
Tax Basis of Fractional Share Sold $ 11.30 $ 2.21
Gain(Loss) From Fractional Share Sale $ (5.12) $ (0.67)
--------- -------- ---------
*Price per Share @ 100% $ 8.825 $ 2.200
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