CD Franchisee Files Nearly $7 Million Claim.

Business Editors

SOUTH AMANA, Iowa--(BUSINESS WIRE)--Jan. 31, 2001

CD Partners, LLC, a CD Warehouse Franchisee headquartered in South Amana, Iowa announced today that it has filed an arbitration claim against CD Warehouse, Inc. (CDWI) for fraudulent misrepresentation and breach of contract. CD Partners is seeking a damage award of nearly $7,000,000. David Gott, General Manager of CD Partners, elaborated on the breach of contract claims, stating they are the result of "CDWI's complete failure to provide the services, support, and financing that they promised as an inducement for our participation in their system- and enroachment, which came about through their total disregard for our protected territories". Scott Zahren, Operations Manager for CD Partners, stated that "This Company (CDWI) has demonstrated such a total lack of regard for not only us, its customers- but also for its own trademarks and brand name, that it is simply unbelievable. Their apparently intentional failures to protect their own brand name have seriously impacted the value of the name "CD Warehouse", and should have every franchisee and stockholder concerned about the future of the Company".

Steve Rose, Chief Financial Officer of CD Partners, when asked about the Partnership's relationship with CDWI said, "We bought our first two existing stores in July 1997. Our business plan, which was based on representations made to us by CDWI as to the services and support they would provide, called for our opening around thirty stores over a three-year period. CDWI has not only deprived us of our exit strategy, it has destroyed our business plan. The more we look back, the more we can't help but think this was intentional".

When asked about the Franchisor- Franchisee relationship, Gott said, "For a franchisor to be successful, it must have multi-store operators eager to develop whole markets. They cannot grow big enough, fast enough relying on the mom and pop operators. This franchisor has damaged its relationship with it customers so badly, that I do not know of a single existing franchisee- multi store or mom and pop- who intends to open any more stores. I suspect, in fact, that if you wanted to buy 100 stores or more tomorrow, CDWI franchisees would stand in line to sell out. Everyone hoped that when prior management left, things would get better- but they've gone from bad to worse".