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DUCK HEAD APPAREL COMPANY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BETTIS C. RAINSFORD
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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BETTIS C. RAINSFORD
108 1/2 COURT HOUSE SQUARE
EDGEFIELD, SC 29824
IMPORTANT MESSAGE REGARDING THE ANNUAL MEETING OF
SHAREHOLDERS OF DUCK HEAD APPAREL COMPANY, INC.
October 30, 2000
Dear Fellow DUCK HEAD APPAREL Shareholder:
My name is Bettis C. Rainsford and, as you know by now, I am one of the
largest shareholders of Duck Head Apparel. I am a co-founder and was the
long-time CFO of Delta Woodside Industries, Inc., the company from which Duck
Head Apparel, and its sister company, Delta Apparel, Inc., were spun off earlier
this year.
During recent years, I had become increasingly disappointed with the
performance of Delta Woodside. I was extremely frustrated with what I regarded
as bad management decisions made by the CEO, E. Erwin Maddrey, II. After
discussions with him were unsuccessful, in February 1998, I presented to the
Delta Woodside Board of Directors the first in a series of documents entitled
"Maximizing Shareholder Value," in which I bluntly pointed out the failure of
Delta Woodside to deliver satisfactory results for shareholders, and laid out a
strategy to recover lost ground. During 1998, many of my proposals were adopted,
eliminating divisional operating losses and reducing debt.
THE BOARD'S ILL-ADVISED SPIN OFF STRATEGY
In 1999, when the Board of Directors of Delta Woodside decided to spin off
the apparel divisions, I opposed this strategy as a bad idea that would leave
Delta Woodside shareholders with illiquid, thinly-capitalized companies, trading
at discounts to their inherent values. The Delta Woodside Board acknowledged
that the shares might be deeply discounted, particularly as institutional
shareholders might seek to sell their shares. At the same time, they put in
place a specific credit facility to repurchase shares of the Company. In my
opinion, it would be a violation of the fiduciary duties of the directors of a
company to craft a strategy which they believed would result in discounted
values, with the intention of taking advantage of shareholders by then causing
the company to repurchase the shares at discounted values which resulted from
their own strategy.
Since the spin-off, the market has substantiated my concerns, as your stock
has traded at an average price of $1.18, which is about 13% OF TANGIBLE BOOK
VALUE!! In addition to the price discount, there is also very limited liquidity,
as is evidenced by the fact that the average daily trading volume has been only
about 7,000 shares, and on half of the trading days, it has been 3,000 shares or
less.
CURRENT BOARD REJECTS 200% PREMIUM PROPOSAL
The current Duck Head Board of Directors recently received a proposal from
the Haggar Corporation to purchase the Company for $10 million that would have
provided shareholders with a huge premium to the then trading price. The current
Board rejected this opportunity without even informing shareholders. Further,
when the Board met in August 2000 to deliberate over what minimum share price
they would accept were the Company to be sold, they offered a consensus view
that only a price in the range of $8.00 per share would be acceptable, at a time
when the shares were trading in the range of $1.00 per share. I believed this to
be, at a minimum, a telling reflection on the Board's low regard for its
fiduciary duties, particularly when combined with the fact that they had saddled
the Company with a "dead hand" poison pill.
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BOARD GRANTS EXCESSIVE COMPENSATION, ADOPTS POISON PILLS
Most of the current directors of Duck Head, specifically E. Erwin Maddrey,
II, Buck A. Mickel, Max Lennon, Jim Kane, William F. Garrett and C.C. Guy, are
also directors of Delta Woodside and Delta Apparel. Acting in their capacities
as directors of the three companies, these men have undertaken a whole series of
actions during the past year which, in my opinion, have caused shareholders'
investments in these companies to be greatly devalued. In addition to rejecting
a premium offer for Duck Head, they have, in my view, acted irresponsibly by:
- Adopting a "Dead-Hand" Poison Pill at Duck Head,
- Adopting a "Dead-Hand" Poison Pill at Delta Apparel, and
- Adopting a Poison Pill at Delta Woodside, each of which, in my opinion,
serves to entrench these interlocked Boards and depress share values.
- Amending the terms of the option granted to the DUCK HEAD CEO, Bob
Rockey, giving Rockey the opportunity to purchase ONE MILLION Duck Head
shares, or NEARLY 30% OF YOUR COMPANY, at a per share price, if computed
today, of only about 13% of the Company's net tangible book value per
share. This very painful dilution in shareholder value is hard enough to
accept, but when we learned of Rockey's plans to resign as CEO of the
Company within several months of the date when he will presumably
exercise his option, it seemed to me especially unfair.
- Recently hiring a new President and COO of DUCK HEAD, presumably to share
executive duties with Rockey, and to be paid a per annum salary of
$336,000, plus a guaranteed bonus. He's also getting stock options and
awards for 130,000 shares. We thought we were paying Rockey to lead the
Company?!?!
- Adopting the Stock Option and Incentive Stock Award Plans at DUCK HEAD,
representing 22.5% OF THE SHARES OF YOUR COMPANY. The shares in the Duck
Head Plans, combined with the Rockey million share option, would
constitute OVER 41% of the equity of Duck Head.
- DENYING YOU AN OPPORTUNITY TO VOTE on the Duck Head Stock Option and
Incentive Stock Award Plans. The Board had previously ordered the Plans
to be submitted to a vote of the shareholders at the 2000 Annual Meeting.
Recently, and incredibly, a newly formed "special committee" of the Duck
Head Board -- a committee of all Board members EXCEPT ME -- resolved to
reverse that decision without explanation other than stating:
"That it is not in the best interest of the Company
and its shareholders to submit the Plans to the
Company's shareholders at the 2000 Annual Meeting"!!
- Approving a Severance Plan for Employees of DUCK HEAD, which, if
implemented, could cost you up to an additional $1 million in severance
upon a sale of the Company, or about 40% of the market capitalization of
the Company at the time the Plan was approved. This money should
rightfully belong to shareholders.
- Adopting the Stock Option and Incentive Stock Award Plans at DELTA
APPAREL, representing 22.5% OF THE SHARES OF THAT COMPANY, and NOT
ALLOWING THE PUBLIC SHAREHOLDERS THE OPPORTUNITY TO VOTE ON IT.
- Adopting, and submitting for shareholder approval, stock option and stock
award plans at DELTA WOODSIDE, representing 10% OF THE SHARES OF THAT
COMPANY. Originally, Mr. Garrett, one of the aforementioned directors,
had lobbied me to support employee stock plans for 22.5% of the Delta
Woodside shares -- the same high level adopted by the Boards of the two
apparel companies.
- Paying the DELTA APPAREL CEO, during the fiscal year 2000, compensation
equal to $1,348,286, or about 28% of the net income of that company.
- Paying fiscal year 2000 bonuses to the top 3 DELTA APPAREL EXECUTIVES OF
$1,270,180, or about 27% of the net income of that company. The Delta
Apparel Board was informed that the total bonuses to be
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paid to all employees would be in the range of $3 million and that the
Delta Apparel CEO alone would receive 25% of the total bonus pool. He
actually received $908,700 in bonus. You can imagine the total bonus pool
of the company!!
- Increasing their own compensation as Directors from $30,000 annually
before the spin-off as Delta Woodside directors to what will be increased
in five years to $60,000 annually for combined service in the three
companies.
STOP FURTHER IRRESPONSIBLE ACTIONS BY THE BOARD -- VOTE THE BLUE PROXY
While all of the above actions during the past 15 months were undertaken
for the benefit of the directors and management, little was done, in my opinion,
for the benefit of the former Delta Woodside shareholders, who have experienced
a horrifying loss in value in recent years.
Given the actions and attitude of the current directors, I believe that
unless these directors are removed and replaced with directors committed to
maximizing shareholder value, shareholders will be locked in, for the
foreseeable future, to holding undervalued shares.
THE NEW NOMINEES' PLEDGE
Several weeks ago, I resolved to attempt to replace the incumbent directors
with new directors who are firmly committed to serving the interests of all
shareholders. I am now soliciting your vote for these nominees.
IF ELECTED, THE NEW NOMINEES HAVE PLEDGED THEMSELVES TO:
- PUT THE COMPANY UP FOR AUCTION, giving any interested parties the
opportunity to bid for the Company. In addition to Haggar Corporation, a
number of well-known apparel firms have, in the past, expressed an
interest in Duck Head Apparel and may bid in such an auction;
- Seek to cancel or amend the Rockey million share option to prevent, or at
least minimize, dilution to shareholders upon exercise;
- Cancel all unissued stock options, and resolve not to authorize any
additional stock options unless they have been approved by the
shareholders of the Company;
- Undo the scheduled increase in director fees; and
- Undertake such other actions as are in your best interests as
shareholders of Duck Head Apparel.
YOUR VOTE IS IMPORTANT -- VOTE TO MAXIMIZE SHAREHOLDER VALUE
I believe the choice is clear -- vote for the Nominees that have pledged to
maximize shareholder value. Please vote your BLUE PROXY CARD today and mail it
using the enclosed envelope, even if you have previously signed and sent in a
WHITE card. Only your latest dated proxy card will be counted.
Thank you for your consideration.
Sincerely,
/s/ Bettis C. Rainsford
Bettis C. Rainsford
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SIGN, DATE AND RETURN THE BLUE PROXY CARD TODAY.
IMPORTANT!
1. REGARDLESS OF HOW MANY SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD. PLEASE VOTE
EACH BLUE PROXY CARD YOU RECEIVE SINCE EACH ACCOUNT MUST BE VOTED
SEPARATELY. ONLY YOUR LATEST DATED PROXY COUNTS.
2. WE URGE YOU NOT TO SIGN ANY WHITE PROXY CARD SENT TO YOU BY THE COMPANY,
NOT EVEN AS A VOTE OF PROTEST.
3. EVEN IF YOU HAVE SENT A WHITE PROXY CARD TO THE COMPANY, YOU HAVE EVERY
LEGAL RIGHT TO CHANGE YOUR VOTE. YOU MAY REVOKE THAT PROXY, AND VOTE FOR
YOUR BEST INTERESTS BY SIGNING, DATING AND MAILING THE ENCLOSED BLUE
PROXY CARD IN THE ENCLOSED ENVELOPE.
4. IF YOUR SHARES ARE HELD IN THE NAME OF A BANK OR BROKER, PLEASE CONTACT
MORROW & CO., MY PROXY SOLICITOR, WHO WILL ASSIST YOU IN GETTING YOUR
BROKERAGE SHARES VOTED.
IF YOU HAVE ANY QUESTIONS ON HOW TO VOTE YOUR SHARES,
PLEASE CALL MY PROXY SOLICITOR:
MORROW & CO. AT (800) 662-5200.