May 10, 2004

LOS ANGELES—Jacmar Companies, operator of 19 Shakey's Pizza restaurants, is negotiating to acquire Shakey's Inc., franchisor of the 61-unit chain based here.

Jacmar's move comes just a week before a May 12 courtroom showdown between Shakey's Inc. and 19 of its franchisees, who sued the company in December 2002.

The multi-million-dollar lawsuit charged Shakey's with fraud, negligent misrepresentation and breach of contract.

In April, Los Angeles County Superior Court Judge Ralph Dau removed the fraud and negligent misrepresentation components of the complaint, but left the breach of contract components, which could cost Shakey's millions in potential damages

Siskind said a Jacmar purchase would be a tremendous boost for the beleaguered pizza chain, which once boasted 450 units in the U.S. Not only are Jacmar's 19 Shakey's profitable, they're supported by Jacmar's own private food distributorship based in Irwindale, Calif.

Jacmar also is well heeled. According to a filing with the Securities and Exchange Commission, it owns 41.5 percent of the outstanding shares (worth roughly $115 million) in Chicago Pizza & Brewery, a 30-unit, pizza-centered restaurant and brewery chain based in Huntington Beach, Calif.It wields a great deal of leverage within the Shakey's chain, as well.

In a 2002 interview with PizzaMarketplace, Hill said Jacmar would not renew its franchise contract with Shakey's when it expired in 2005, if Inno-Pacific still owned the company. "We will never—and this is an irrevocable statement—be associated beyond the length of our existing contract with Inno-Pacific. And if there's a way for us to exit the system prior to expiration we will."

According to a 2002 PizzaMarketplace interview with John McNulty, a one-store Shakey's franchisee and president of the Shakey's Franchised Dealers Association, were Jacmar to pull its stores, it would drain $21 million in annual sales from the system and remove at least a third of Shakey's Inc.'s royalties income--a devastating loss to its owner, Inno-Pacific

As stated in Inno-Pacific's 2002 and 2003 annual reports, independent financial auditors expressed strong doubts about the holding company's ability to continue as a going concern.

The reports said Inno-Pacific faces millions in unpaid taxes to the Singapore tax authority, as well as potential losses in the U.S. from ongoing franchisee litigation against Shakey's Inc., the company's only revenue-generating subsidiary.

Inno-Pacific recently hoped to gain Singaporean analyst coverage for its stock (valued at U.S. 14 cents a share), but according to a May 4 report in Singapore's 
Business Times, two stock watchers who looked at the company issued only "sell" advisories.

So what would a sale to Jacmar yield? The answer is anyone's guess, said Siskind, since assessing Shakey's actual worth is difficult.

The chain's gross sales for 2003 were $53 million, which would produce royalties of $1.6 million to $2.7 million (based on an estimated range of 3 percent to 5 percent payments on gross sales).

As of June 30, 2002, Shakey's balance sheet cited total assets of $2.1 million in assets, but total liabilities of $2.1 million