CD Warehouse Franchisee Association Reports on Franchisee Litigation and Arbitration Against CD Warehouse, Inc.

Business Editors & Legal Writers

HUNTSVILLE, Ala.--(BUSINESS WIRE)--Dec. 13, 2001

In the latest legal action against CD Warehouse, Inc. (CDWI), the Alabama District Court has granted three temporary restraining orders allowing all royalties owed by three CDWI franchises in Alabama to be held in escrow, pending a future hearing. The stores are owned by Catherine Ehlinger, President of Czarina 1, Inc., and CD Warehouse's 2000 "Operator of the Year." Ehlinger said, "It's sad it has to come to this, but it's clear there is no value to this system and they are no longer providing what we were led to expect from them."

Ehlinger is one of ten franchisees representing 28 stores to have active arbitration or litigation with CDWI. In their demands, the Franchisees all assert that the franchisor has failed to provide support, services or value for the royalties paid. In addition to Ehlinger, five other CDWI Franchisees have filed Demands for Arbitration over the past month, requesting to be released from their franchise agreements. Lyle Larsen, whose store in Idaho Falls, Idaho was CDWI's second highest grossing store in 2000, Terry Shellock, whose Northfield, New Jersey store has consistently been among CDWI's Top 10 grossing stores, JoAnne Hill, a two store operator in Little Rock, Arkansas who was President of CDWI's now-disbanded Franchise Advisory Council, Douglas Mashkow, a three store owner from Long Island, New York who was CDWI's "Operator of the Year" in 1998, and Don Young, operator of three stores in Georgia and South Carolina have all filed arbitration demands within the past month.

CD Warehouse also has a hearing scheduled for December 18th on an Arbitration filed by Farid Zokayi and Narmela Nakhjavani, who operate two stores in Orange County, CA. The California franchisees allege that CDWI sold them a franchise without the availability of the trademark, as they were threatened with a lawsuit by Compact Disc Warehouse of California over trademark infringement and forced to change the name of their stores by CD Warehouse.

A third Arbitrator has finally been selected for an Arbitration filed by CD Partners, Inc., an eight store operator based in Iowa, headed by former CDWFA President David Gott. Hearings should be scheduled early next year in the case, in which CD Partners seeks $7 Million in damages from CDWI.

Jim Boushka, President of the CD Warehouse Franchisee Association (CDWFA) Said, "While the many franchise filings are not being taken by or through the CDWFA, the issues involved are the same issues we have been raising for years. The fact that so many Franchisees from coast to coast have taken this step

makes it obvious that there are serious problems inherent in the CD Warehouse system that have been ignored for years. The issues we have raised are about the lack of value in this system and the survival of us all, not the technical enforceability of their contracts. That's what they don't seem to understand."

For any questions, or to set up a time for an interview, please contact:

-- JIM BOUSHKA, PRESIDENT, CDWFA 512 327-3305

-- CATHERINE EHLINGER 256 337-3672

-- LYLE LARSEN 208 522-7458

-- JOANNE HILL 501 494-1808

-- TERRY SHELLOCK 609 646-4600

-- DOUGLAS MASHKOW 516 326-7485

-- DON YOUNG 706 729-0446

-- FARID ZOKAYI 714 536-7544