Lawsuit settled between Shakey's and two franchisees

July 22, 2002

SINGAPORE -- A year-long lawsuit between two Shakey's Pizza franchisees and Shakey's Incorporated has been "amicably settled," according a June 12 statement from Inno-Pacific Holdings, Ltd., parent company of Garden Grove, Calif.-based Shakey's.

In the statement, published on the Web site of the Singapore Stock Exchange, both parties agreed to cease the litigation "to avoid further expense and settle on terms and conditions that are mutually beneficial to the parties and the Shakey's system."

The agreement provides for a long-term relationship with Shakey's, but those conditions are confidential and court documents will be sealed.

A joint release to the trade press will be made in the United States by Inno-Pacific chairman and Shakey's Inc. CEO, Chin-Yong Wong, later this month.

On March 27, 2001, franchisees Sterling Foods, Inc. and John J. McNulty Jr. (on behalf of his firm Montel Corporation) filed a complaint for damages and declaratory and injunctive relief in Los Angeles County Superior Court against Shakey's Inc., alleging breach of contract, fraud and negligent misrepresentation in respect to its 1980 franchise agreement.

Later that year, Shakey's Inc. filed counter-complaints to both suits, denying liability to either company and seeking its own damages.

The suit went to trial on May 28.

McNulty, president of the Shakey's Franchised Dealers Association (SFDA), and Clark, a board director of the group, will continue in their respective SFDA roles. The families of both have been California-based Shakey's franchisees for more than 40 years.

According to the Inno-Pacific statement, Shakey's Inc.'s legal costs for the suit were approximately U.S. $400,000.

Inno-Pacific has struggled financially over the last few years.Royalties from the 66 Shakey's restaurants in the U.S. make up nearly all of Inno-Pacific's revenue. In 2001, according Business Times, the company lost $13.5 million (U.S. $7.5 million) on $7.3 million (U.S. $4 million) in revenue.

Seeking to raise operating capital for itself and Shakey's Inc., it placed nearly 35 million shares of its stock on the Singapore Exchange at S 1 cent (about one-quarter U.S.) per share on June 4. Trading of its stock halted briefly in May.

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