Sea Galley Is Allowed To Keep Fairbanks Restaurant

Sea Galley Stores Inc. apparently will keep a Fairbanks, Alaska, restaurant it bought on Aug. 7.

The purchase was questioned by Food Services of America in a Food Services lawsuit against Sea Galley. Food Services, a longtime Sea Galley supplier, had obtained court-ordered restrictions on some Sea Galley assets on Aug. 7 and Food Services attorneys contended that the purchase of the restaurant violated those restrictions.

Sea Galley and Food Services are embroiled in a court dispute over unpaid bills and pricing issues.

But Superior Court Judge Norma Smith-Huggins said any money spent on the acquisition "before the close of business" on Aug. 7 was not controlled by the court's restrictions.

John Rozzardi, a Sea Galley attorney, told the judge that the purchase has been under negotiation since April and closed Aug. 7.

Sea Galley got a good deal on the restaurant, which was close to filing for bankruptcy under Chapter 11, says Keith Huetson, Sea Galley's chief financial officer.

Despite its own weak financial position, Sea Galley was able to restructure and assume the debt. Huetson refused to say how much Sea Galley paid for The Pumphouse, but he would say the deal required only $150,000 in cash. The Fairbanks restaurant will not be turned into a Sea Galley.

The Pumphouse purchase comes just weeks after the chain closed its University District and Everett restaurants.

The closing of those two stores raises a conflict-of-interest question for Sea Galley board member John Cox. Huetson said both restaurants had leases that were personally guaranteed by Cox and the closing eliminated them.

At the annual meeting in June, a shareholder questioned Cox about the potential conflict of interest over his personal liabilities on leases. Cox, a Sea Galley co-founder, said only that he must answer to shareholders for his actions.

Cox reportedly has personally signed for leases on five Sea Galley restaurants for a total liability estimated at $3.5 million. The closure of the Everett and University District stores eliminates two of the five liabilities. Jan Young, Sea Galley's chief executive officer, would not comment on the issue.

John Radovich, Sea Galley's largest shareholder, questioned the restaurant closures. Radovich, a Bellevue real estate developer, said he thought both sites were well located.

"I think they are good locations, and my profession is real estate. In Everett, Red Lobster is coming in within 100 yards of (Sea Galley) so they must think it's a good location," Radovich said. The University Village restaurant is near one of the busiest intersections in Seattle, he said.

Huetson said both stores were the chain's biggest cash-flow drains. The Everett restaurant's business was abysmal and turning the site around would simply have required too much cash, a short commodity at Sea Galley.

Besides also suffering from a lack of business, the University District restaurant had other problems, he said.

"The facility was atrocious and the health department was raising a stink from one week to the next," he says. The building is old and the rodents were impossible to control, Huetson said.

The Seattle-King County Health Department disagrees, however. The health department's biggest concerns are food-handling problems not older facilities, says Gale Yuen, environmental health supervisor for north district, Seattle-King County Health Department.

According to the agency's records, Sea Galley at University Village was last inspected in March and the company did get an unsatisfactory rating. A re-inspection, however, showed all of the violations, except one, were corrected, and the restaurant was given a satisfactory rating, Yuen says.

The health department was not considering shutting the restaurant down, Yuen says.

Sea Galley's biggest problem with the health department was probably its delinquent bill. Yuen says the restaurant had not paid its annual fee, which was due in April. The fee, including late charges, is $343.

TOMORROW IN THE TIMES

Sea Galley has plans to be around for awhile despite its financial problems. A Business Monday Strategy story looks at this financially troubled restaurant chain.