NAPERVILLE, Ill., Feb. 4 /PRNewswire/ -- Factory Card Outlet Corp.
(Nasdaq: FCPY) announced today it has entered into a letter of intent with
respect to the issuance of $12.0 million of convertible preferred stock to an
investment fund managed by Catalyst Equity Partners, LLC.
    The preferred stock would have a coupon rate of 8% per annum, payable in
cash or additional shares of preferred stock at the option of the Company, and
would be convertible into the Company's common stock at a price of $1.50 per
share at any time after the first anniversary of the closing.  The holders of
the preferred stock would have the right to require the Company to redeem the
preferred stock at any time after the fifth anniversary of the closing for a
price equal to the original purchase price plus all accrued and unpaid
dividends.
    The preferred stock would vote together with the shares of the Company's
common stock on an as converted basis (which would initially give Catalyst
approximately 51% of the total voting power of the Company).  Catalyst would
also receive warrants to purchase 600,000 shares of the Company's common stock
at an exercise price of $2.00 per share.  In addition, at the closing of the
preferred stock issuance, Catalyst would designate a majority of the Company's
Board of Directors.
    The closing of the transaction contemplated by the letter of intent is
subject to a number of conditions, including, among other things:  the
negotiation of definitive documents; the receipt of all necessary approvals,
including the approval of Nasdaq; the restructuring of the Company's current
credit facilities; the renegotiation of payment terms with respect to amounts
currently owed to vendors and lessors; and the Company's existing management
purchasing $750,000 of the preferred stock.  As the Company has previously
disclosed, the Company is currently in discussions with its existing lenders
and potential lenders with respect to additional and/or replacement sources of
debt financing.  The Company is also continuing its discussions with
suppliers.  There can be no assurance that the Company will be successful in
its efforts to consummate the preferred stock issuance to Catalyst or to raise
additional debt financing.
    Factory Card Outlet is a chain of company-owned superstores offering a
vast assortment of party supplies, greeting cards, gift wrap and other special
occasion merchandise at everyday value prices.  The Company currently operates
210 company-owned stores in 23 states.
    Certain statements in this news release may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.  Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results or
achievements expressed or implied thereby to be materially different from such
forward-looking statements.  Such factors include, among others, the
following:  the success of efforts to renegotiate the Company's senior credit
facilities; store performance; weather and economic conditions; dependence on
key personnel; competition; ability to anticipate merchandise trends and
consumer demand; ability to maintain relationships with suppliers; successful
implementation of information systems; successful handling of merchandise
logistics; inventory shrinkage; availability and cost of capital; governmental
regulations; ability to complete corrective action necessary to address Year
2000 issues and other factors both referenced and not referenced in the
Company's Transition Report on Form 10-K and the Company's other filings with
the Securities and Exchange Commission.  In particular, the Company is
attempting to amend its senior credit facilities to increase the borrowing
capacity under such facilities.  The Company is also exploring the refinancing
of its senior credit facilities and/or the raising of funds through the
incurrence of additional debt.  There can be no assurance that the Company
will be successful in such efforts.  Any such efforts may (i) increase the
Company's cost of capital, (ii) result in equity dilution to the holders of
the Company's common stock, (iii) increase the Company's vulnerability to
general adverse economic and industry conditions, (iv) limit the Company's
ability to obtain additional financing to fund future working capital and
capital expenditure needs, (v) limit the Company's flexibility in planning for
changes in its business and industry, and (vi) place the Company at a
competitive disadvantage vis-a-vis less leveraged competitors.  The Company's
current liquidity position may also adversely affect its relationship with its
suppliers which could have a material adverse effect on the Company's
business, financial condition and results of operations.

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