Converse Inc. Receives Financing Proposal.

Business/Technology Editors

NORTH READING, Mass.--(BUSINESS WIRE)--July 31, 2000

Converse Inc. (OTCBB:CVEO) today announced that it has received a proposal from a private investment group to provide $25,000,000 in new financing. Last week, an alternative investor offered a commitment letter for $55,000,000 in bridge financing in connection with a contemplated license income securitization transaction, but conditions required for that financing were not reasonably achievable and, therefore, not acceptable to the company.

The $25,000,000 financing is subject, among other things, to the negotiation of definitive legal documentation, final approval of the company's Board of Directors, and other customary closing conditions and requires the existing secured creditors of Converse to consent to the transaction. The transaction is expected to close by August 31, 2000.

Converse is currently in default of certain financial covenants under its senior secured bank line of credit and its senior secured notes. Converse is also in default under its 7% convertible subordinated notes, because it did not make a June 30 interest payment to the holders of such notes (the "Subordinated Noteholders"). Certain Subordinated Noteholders have established an unofficial committee (the "Committee") to represent them, and the Committee has met with the company to address restructuring its obligations to them. Converse has provided the Committee with financial and other information not yet publicly disclosed. A summary of this information is set forth below:

Results of Operations at May 31, 2000: Actual year-to-date net sales were $82.0 million, compared to a budgeted $87.9 million and last year's same period net sales of $99.3 million. Year-to-date operating earnings were $665,000, compared to budgeted operating earnings of $303,000 and last year's same period operating loss of $3.4 million on a pro forma basis (after adjusting for the sale of the company's non-footwear trademarks and licenses in Japan). The year-to-date net loss was $9.4 million, compared to a budgeted net loss of $8.9 million and last year's same period net loss of $12.1 million on a pro forma basis (after adjusting for the sale of the company's non-footwear trademarks and licenses in Japan).Year-to-date operating expenses were $24.1 million compared to $34.5 million in last year's same period.

Balance Sheet Data at May 31, 2000: Total assets were $145.6 million compared to a budgeted $155.2 million and last year's same period total assets of $194.8 million. Total liabilities were $268.1 million, compared to a budgeted $276.6 million and last year's same period total liabilities of $275.0 million. Total equity was a deficit of $122.4 million, compared to a budgeted deficit of $121.4 million and last year's same period total equity deficit of $80.2 million. Secured debt at May 31, 2000 was $100.8 million, compared to a budgeted $111.6 million and last year's same period secured debt of $107.0 million.

Estimated net sales for the first six months of 2000 were $109.0 million, compared to $129.4 million (actual) in the same period of 1999, with estimated U.S. net sales of $73.5 million, compared to $68.7 million (actual) in the same period of 1999, and estimated international net sales of $35.5 million, compared to $60.7 million (actual) in the same period of 1999.

As of July 15, 2000, total order backlog was $66.2 million, compared to $69.2 at the same date last year, with U.S. order backlog at $55.3 in 2000, compared to $44.1 million last year, and international order backlog at $12.9 million, compared to $25.1 million at the same date last year. The 1999 backlog figure has been adjusted to eliminate the Company's backlog in Italy, Canada, and the Benelux countries, where the Company's subsidiaries have been converted to licensee arrangements.

Forecasts and Projections: Converse currently forecasts net sales for 2000 to total between $209 million and $219 million, compared to budgeted net sales of approximately $216.7 in 2000 million and total net sales of $231.8 million in 1999. Licensee income for 2000 is currently forecast to total between $16 million and $18 million, compared to a budgeted total license income of $17.8 million in 2000 and total licensee income (after adjusting for the sale of Japanese non-footwear trademarks and license agreements) of $16.1 million in 1999. Operating earnings for 2000 are currently forecast to between $5 million and $7 million, compared to budgeted operating earnings of $7.8 million in 2000 and total 1999 pro forma operating loss of $12.4 million (after eliminating the license income from trademarks sold to Itochu, the gain on sale of those trademarks and the restructuring charges).

For 2001, projections prepared by Converse show current projections of net sales of between $215 million and $225 million, license income between $18 million and $19 million and operating earnings between $23 million and $27 million.

Converse does not, as a matter of course, make public any forecasts or projections regarding its future financial performance. The foregoing forecasts and projections were not prepared with a view to public disclosure or compliance with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts and are included herein only because such information was provided to the Committee in connection with their evaluation of Converse. Converse's internal financial forecasts and projections are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretation and periodic revisions based on actual experience and business developments. The projections also reflect numerous assumptions (not all of which were provided to the Committee) made by management of the company with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond the company's control. Accordingly, there can be no assurance that the assumptions made in preparation of the projections will prove accurate. It is expected that there will be differences between actual and projected results and actual results may be materially greater or less than those contained in the projections. Converse makes no representation to any person regarding the ultimate performance of the company compared to the information contained in the forecasts and projections described above, and does not intend to update or otherwise revise them to reflect circumstances existing after today's date or to reflect the occurrence of events, even if any or all of the assumptions underlying the forecasts or projections are shown to be in error.

Any statements set forth above which are not historical facts, including those statements indicating the belief, expectation or intent of the Company, are forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Potential risks and uncertainties include such factors as the financial strength of the Company, the competitive pricing environment and inventory levels within the footwear and apparel industries, consumer demand for athletic footwear, market acceptance of the Company's products, the availability and cost of working capital financing, the strength of the U.S. dollar, the success of planned advertising, marketing and promotional campaigns, the ability of the Company to complete a proposed financing transaction and other risks identified in documents filed by the Company with the Securities and Exchange Commission.