Gladstone's parent planning to go private as finances falter yet again. (Up Front).

California Beach Restaurants Inc., the sparsely traded parent of Pacific Palisades icon Gladstone's 4 Fish, is undergoing yet another financial restructuring involving a bailout from some of its A-list investors.

This time there are plans to go private.

The company, whose owners include Eli Broad, John Cushman and a trust fund for the children of former L.A. Mayor Richard Riordan, has been a poor financial performer for years, most recently falling behind on its beachfront lease with the County of Los Angeles in January.

Though public, the stock hasn't traded regularly since being delisted from the Nasdaq Stock Market in 1992. California Beach Restaurants trades on the over the counter bulletin board.

By buying up odd lots of 15 shares or less -- at a price of $1 each, far above market value -- its board hopes to reduce the number of shareholders to below 300, which would allow it to cease filing reports with the Securities and Exchange Commission.

The board controls about half of the 3.4 million shares that have been issued. J. Christopher Lewis, a general partner in venture capital firm Riordan Lewis & Haden, is the single largest shareholder.

Chief Executive Dick Powell, who left Lawry's the Prime Rib in Beverly Hills in January to join California Beach Restaurants, said the changeover likely would be completed within the next two weeks.

The move will save the expenses associated with staying public, estimated by an industry analyst to be at least $250,000 per year. Powell said the figure was "in the ballpark:"

The company will also restructure about $3.4 million of its debt, issuing preferred stock in its place.

Wipeout

Gladstone's, perched above a rocky coastline at the intersection of Sunset Boulevard and Pacific Coast Highway, was started in 1973 by Robert J. Morris and quickly became one of L.A.'s most popular eateries. (Gladstone's remains the highest-grossing restaurant in the Los Angeles area, at $13.1 million in 2002, second highest in the state, and 17th highest in the nation, according to the Restaurant Industry Association.)

Ten years after its founding, Morris sold it to W.R. Grace, a New York-based conglomerate, and became head of Grace's restaurant group. In 1990, Morris bought it back, recruiting a roster of deep-pocketed investors and taking out a $10 million loan from Bank of America.

A string of fires, floods and mudslides in the 1990s took their toll on the operation. As sales sank, the company became unable to keep up with debt obligations. The stock fell below $1 and was subsequently delisted from the Nasdaq.

Bankruptcy was narrowly escaped in 1994 by successfully renegotiating and restructuring its bank debt, according to filings with the SEC.

Its next brush with trouble came in 1997, after its 2.8-acre shoreline lease with the county expired. To fend off a challenge for the location from Chicago-based Levy Restaurants, Gladstone's had to more than double its annual minimum rent to more than $1 million, and agreed to spend $2.7 million on restaurant improvements. (It now pays nearly $1.8 million annually in base rent, plus a percentage of its revenues.)

Borrowings to fund restaurant improvements led to another $1.8 million infusion from members of the board.

Powell maintains the costs are worthwhile. "There's no better location in California for a restaurant like ours," he said.

Under water

California Beach Restaurants has had problems making payments on a number of items, including the Gladstone's lease. As of Jan. 31, current liabilities were $4.9 million and the stockholder's deficit was $2.5 million. Meanwhile, sales for the third quarter ended Jan. 31 fell 8 percent, to $2.6 million. The economic downturn and a drop-off in tourism are blamed.

In January, the county sent California Beach Restaurants' Sea View unit, which operates Gladstone's, a notice of default on $310,000 in back rent and interest, according to SEC filings.

The restaurant asked the Board of Supervisors to temporarily waive its $450,000 security deposit for rights to licensing the Gladstone's name, according to county documents. The proposal was tabled, and Gladstone's borrowed enough money to make its payment.

Once private, Powell said there are plans to license the restaurant's name to independent operators, which has proven to be profitable.

After an attempt to open a wholly owned Gladstone's in Newport Beach failed in the mid-1980s, the company has not tried to open new facilities of its own, instead focusing on a policy of licensing its name, Powell said.

The company has had a contract with Universal Studios Inc., now owned by Paris-based Vivendi Universal, since 1992 for the Gladstone's 4 Fish on the Universal Studios City Walk. That deal brought in about $68,000 annually for the past three years, according to SEC filings.

In November 2001, the company entered into another licensing agreement with Pendragon Partners LLC, which plans to open a location in Long Beach. California Beach Restaurants will get $100,000 for each new location and a 1 percent cut of the facility's revenues, which increases to 2 percent if revenues exceed $5 million.'

If Pendragon, which has former California Beach Restaurant Chief Executive Alan Redhead at its helm, has revenues greater than $5 million annually, the company has the right to open two more locations, according to SEC filings.

"In Los Angeles, Gladstone's is an institution, but when you travel beyond L.A., its name recognition dries up some," said industry consultant Randall Haitt, president of Costa Mesabased Fessel International. "But they should do very well in Long Beach."

Meanwhile, Morris has nothing to say about the operation he bowed out of in 1992.

He now spends almost all of his time at his Paradise Cove Beach Cafe in Malibu, running the restaurant's day-to-day activities and teaching his son how to surf.

"I've never been happier," he said.