Dolphin Limited Partnership-I, L.P., a Stamford, CT. based private investment partnership and an affiliate hold 200,000 shares of Johnson Outdoors, Inc. sent the following letter announcing that it would vote against the JOUT 'going private' transaction and outlining many concerns with the process so far.

Attention: Members of the Special Committee

Gentlemen:

Dolphin Limited Partnership I, L.P. and affiliate (“Dolphin”) hold 200,000 shares of Johnson Outdoors, Inc. (“JOUT” or the “Company”). Because numerous conversations with members of the JOUT management team and their advisors have not produced satisfactory answers, we turn to you, the members of the Special Committee, to address the serious concerns we have regarding the $20.10 announced going private transaction with the Johnson Family.

The proxy materials provided by JOUT are fraught with unconvincing analyses and statements that, in our view, don't stand up to scrutiny and top management has not yet provided acceptable answers. It is our present belief that the $20.10 offer from the Johnson Family is not in the best interests of JOUT'S MINORITY shareholders and we WILL vote against the transaction.

Below, we outline each of our concerns, in the hopes that you will publicly address these issues prior to the announced March 22, 2005 shareholder meeting.

1. “Freely negotiated transaction.” In its most recent letter to
shareholders, JOUT Management has taken great pains to remind us that
the Company has entered into a “freely negotiated transaction” that
reflects the “future value of Johnson Outdoors as an independent
entity.” The Proxy Statement also states that in making its
recommendation, the Special Committee relied on factors including “the
fact that, to date, no third party has come forward with an
alternative transaction proposal.” (pg. 29) However, the Proxy
Statement also states that the Johnson Family, with its controlling
interest, “did not have any interest in selling their Johnson Outdoors
shares and therefore would not support an alternative transaction.”
(pg. 20) In these circumstances, how could the Special Committee or
the Board reasonably have believed that a post-announcement “market-
check” could lend any credence to the fairness of the transaction? It
makes sense to us that there would be legitimate third party buyers
for the Company.

2. “21.2% Premium to Stock Price.” The Proxy Statement and Company
correspondence are littered with references to the premium this
transaction represents to JOUT shareholders based on the JOUT stock
price as of February 20, 2004. This metric is meaningless. It has
been over a year since the Johnson Family made their initial offer to
acquire the Company. In that time, the Company's performance has
improved and the Company has made a material and accretive
acquisition. Operating profit for fiscal-year 2003 was $11.6 million
while fiscal-year 2004 operating profit was $19.1 million. At a
conservative multiple of 7x, the $7.5 million of additional operating
profit would be worth an additional $5.75 per share, implying a
takeout price of $23.85 versus the original bid of $18.10. This does
not even take into account the acquisition of Techsonic, Inc., which
is expected to be accretive to fiscal 2005 performance according to
the Proxy Statement. (pg. 22) On an “apples to apples” basis, it
appears to us that this transaction represents a significant discount
to the real value of the Company rather than a premium.

3. “Reliance on Outside Advisors.” The most recent letter to
shareholders, as well as the Proxy Statement, also remind us that the
Special Committee relied on the counsel and analysis of an outside
Financial Advisor in reaching its recommendation of the transaction.
As you are no doubt aware, a recent article in the Wall Street Journal
raised concerns over whether fairness opinions issued in M&A
transactions in fact provide fair and independent analysis of
transaction value.

(1) We have several concerns regarding the Financial Advisor presentation materials provided to the Special Committee and used in the fairness opinion.

  • “Alternative Forecast.” In performing its discounted cash flow analysis, the Special Committee's Financial Advisor considered an “alternative forecast,” in which it discounted EBIT forecasted by JOUT's top management by a factor of 15% because, according to the Financial Advisor, the Company's actual EBIT has historically trailed forecasts. Because this is a going private transaction, JOUT management, including Ms. Johnson-Leipold as CEO, both prepares the Company's projections and proposes to acquire the Company in a transaction whose fairness is judged on the basis of those projections. The inherent conflict involved here is not remedied by the engagement of a Financial Advisor who uses those projections as furnished (or worse, discounts the acquirer's own projections with the effect of making the proposed transaction seem more attractive to shareholders), while disclaiming responsibility for their preparation. Has the Special Committee's Financial Advisor ever discounted a management team's projections to arrive at a conclusion of fairness in any other management buyout transaction? We doubt it.
  • “Premiums Paid Analysis.” In its March 24, 2004 presentation, the Special Committee's Financial Advisor used 101 going private transactions since January 2001 to arrive at a premium range of 20-79%, while the October 29, 2004 presentation used 254 transactions to derive a premium range of 10-69%. The result of the addition of these 153 transactions was to decrease the bottom of the premium range. How many of these 153 additional transactions were actually consummated between March and October of 2004?
  • “Comparable Acquisition Analysis.” In its March 24, 2004 presentation, the Special Committee's Financial Advisor's comparable acquisition analysis implied a multiple range of 7.9x-8.9x LTM EBITDA. In the October 29, 2004 presentation, after removing the Bain/Bombardier transaction (7.9x) and the Huffy/Gen-x transaction (12.7x), the range fell to 7.0x-7.4x LTM EBITDA. The removal of these transactions had the effect of decreasing the comparable multiple. Why were these transactions removed from the analysis?
  • “Discounted Cash Flow and LBO Analysis.” Between March 24, 2004 and October 29, 2004, the Special Committee's Financial Advisor reduced the top end of the range of Terminal Multiples from 9x to 8.5x, and increased the range of the discount rates applied in these analyses from 11%-13% to 13%-15%. Each of these changes had the unhappy consequence, from a JOUT minority shareholder perspective, of lowering the total enterprise value of the Company and making the proposed going private transaction appear more attractive. What was the reason for making these changes?
  • “Working Capital Adjustment.” While the March 24, 2004 presentation did not include an adjustment to cash for the “seasonal build up” of working capital (possibly because it worked to the benefit of the Johnson Family in March), the October 29, 2004 presentation reduced the cash position of the Company by $22 million (approximately $2.40 per share) therefore reducing the total enterprise value of the Company and making all of the multiple-based analyses appear more attractive. Given the $28 million acquisition of Techsonic, Inc. on May 6, 2004, the reduction of the military tent business recently announced and the fact that it is March again, a seasonal high point for working capital, the Company should at least revisit this working capital adjustment and provide its shareholders with a more updated pro forma average annual working capital analysis. A reduction of just $9 million in working capital would provide room to pay the minority public shareholders holding roughly 4.5 million shares an additional $2.00 per share.

Each of these inconsistencies smack of working backwards from the desired result of “fairness” to chip away at the valuation of the Company until the $20.10 transaction appears fair. We are not comforted by the process and the work of the Special Committee's Financial Advisor in this proposed transaction.

4. “Weakening Performance.” According to the Proxy Statement, on September 22, 2004, Mr. George, on behalf of the Johnson Family, stated that the Johnson Family was unwilling to increase its previous bid but was willing to complete the proposed transaction based on the $20.10 price, “despite what he described as a weakening in Johnson Outdoors' performance.” (pg. 25) On September 29, 2004 the Company presented the Special Committee with “a revised fiscal-year 2004 forecast and fiscal-year 2005 budget.” (pg. 25) At the October 1, 2004 Special Committee meeting, the Special Committee's Financial Advisor “noted that increases in the preliminary valuation ranges indicated by the more recent preliminary leveraged buyout and discounted cash flow analyses were due primarily to (1) revised management forecasts … ” (pg. 26)

Rather than “weakening” as Mr. George had stated, it appears that in the month of September that the Company's prospects were looking brighter. These passages of the Proxy Statement, all within a page of each other, are misleading and, it appears to us, to attempt to hide the positive overall momentum of JOUT's core businesses.

5. “Techsonic Acquisition.” In its May 6, 2004 announcement of the $28 million Techsonic, Inc. acquisition, JOUT management anticipated that the acquisition would be accretive to cash flow and earnings for the fiscal-year 2005. (pg. 22) Yet, on May 11, 2004 , Mr. George, stated that, “given the cash price at which Johnson Outdoors had acquired Techsonic and their belief that such a cash price included a premium that fully reflected the anticipated accretive effects of the Techsonic acquisition, the Johnsons would not be willing to pay a higher price for Johnson Outdoors common stock based on the anticipated accretive effects of the Techsonic acquisition.” (pg. 23)

These two positions appear diametrically opposed. If Mr. George is to be believed, the Techsonic acquisition will not be accretive to fiscal-year 2005 earnings.

Further, when speaking to the Company's
internal spokesperson about this very issue, we were told that what
Mr. George really meant was that the Johnson Family did not want to
pay for Techsonic “twice.” This is an outrageous response as it was
not the Johnson Family that acquired Techsonic but the Company. It
was not Johnson Family capital that was used, it was the capital
supplied by all the shareholders of the Company and therefore it is
appropriate that all the shareholders be compensated for the accretion
that the Techsonic transaction generates. This is a symptom of the
larger problem of treating a public company, with public capital, as
if it were a private company. The Johnson Family has not taken the
Company private yet, and should pay a full and fair price in order to
do so.

6. “Military Tent Sales.” In its March 1, 2005 press release, it appears
to us that JOUT's top management attempted to scare the many
dissatisfied shareholders into voting for the proposed transaction by
reemphasizing the seriousness of the changes in the military tent
business.

In this release, Jerry Perkins, President and COO, stated,
“While we knew military tent sales would decline, we now know the rate
of decline is greater than previously expected … .military tent
sales will decline at least 40% this year, and significantly more in
2006.” While we feel for the affected employees of the Binghampton
facility and their families, there was nothing materially new in this
press release. JOUT top management had been speaking about a
reduction in the military sales business for months and in fact wrote,
on page 8 of the Company's 2004 Form 10-K, that “military tent sales
are expected to drop 40-50% in fiscal 2005 as current contracts and
emergency orders come to an end.”

Given that the Company had just
recently completed its earnings call and finalized the proxy statement
and the fact that the information in the release was already
understood by the market, the timing of this March 1st announcement
seems very curious.

Sadly, issues like the ones we have cited here are all too prevalent in going private transactions. This underscores the importance of the role of the Special Committee and the fiduciary duties of its members to protect the interests of minority shareholders. We do not believe minority shareholders are served by this inadequate transaction and therefore we intend to vote against the transaction on March 22, 2005. From the Company's Proxy Statement, it appears that the transaction will fail if approximately 1.5 million unaffiliated shares either abstain or vote against this transaction. Given the relatively small minority, every $1.00 increase in the share price adds approximately $4.5 million to the overall transaction. It appears to us that the financing package for the acquisition 'overcapitalizes' the Company by as much as $40 million ($4.40 per share), so the current offer price can be significantly increased.

We remain available to continue the dialogue with the Company and we would welcome input from the Special Committee that may help address our concerns. Further, we believe that JOUT has a number of attractive businesses and Dolphin would welcome the opportunity to perform due diligence to determine our willingness to make a more compelling offer to all JOUT shareholders.

Very truly yours,

Donald T. Netter

Senior Managing Director