By Leslie Wright
Free Press Staff Writer

The president of the company that owns Sirloin Saloon in Shelburne and Sweetwaters in Burlington is negotiating to save the restaurant chain from foreclosure after defaulting on a $17.35 million loan.

Hospitality Well Done! Inc. in Shelburne and lender Amresco Commercial Finance Inc. of Boise, Idaho, have agreed to postpone any court action until after Sept. 1, restaurant company President David Melincoff said Tuesday.

A hearing had been scheduled in U.S. District Court in Burlington for June 19 on a lawsuit over the loan. The lawsuit was filed after initial attempts to renegotiate broke down.

In the past week and a half the two sides have been back at the negotiating table and are close to reaching a deal that will allow the restaurant company to keep the properties, Melincoff said. He would not reveal details.

"It's about us being in business for 40 years and about us continuing to be in business for the next 40 years and continuing to serve our guests," Melincoff said.

His company had put up seven of its 10 restaurants as collateral for the loan.

At issue is a $17.35 million loan that a group of managers at the former Perry Restaurant Group used to purchase a group of restaurants from founder Tony Perry. That group borrowed the money in December 1999.

The deal then was for nine restaurants in Vermont, Massachusetts, New York and Connecticut. In Vermont the restaurants included Sweetwaters, three Sirloin Saloons and Perry's Fish House in South Burlington.

By the time Hospitality Well Done! defaulted 36 months later in December 2002, the company had grown to 10 restaurants with 750 employees.

The lawsuit came after a $17 million offer was made for the seven restaurants used as collateral for the loan. Melincoff's company could not match the offer, forcing sale of the restaurants under an agreement with Amresco, according to the restaurateur's lawsuit.

With the prospect of losing the restaurants looming, Hospitality Well Done! sued Amresco saying the loans were "a classic bait-and-switch scheme" designed to force the company into default.

Amresco denied the charges and asked the restaurant company to pay up or hand over the restaurants, according to court documents. Amresco's lawyer Ritchie Berger declined to comment. Amresco Senior Asset Manager Jim Balis, who is mentioned in the lawsuit, did not return a telephone call for comment Tuesday.

Hospitality Well Done! also is suing a third party, Lifestyle Ventures of Memphis, Tenn., claiming the company acted with Amresco in a scheme to buy the seven restaurants after the Vermont company defaulted on the loans. Lifestyle Ventures lawyer Thomas McCormick did not return a telephone call for comment Tuesday.

The $17 million loan was part of a pool of loans to other companies grouped together to be sold to investors. The borrowers agreed that if a loan in the pool went into default, other pool members would cover the default.

In the case of Hospitality Well Done!, that meant extra payments called "credit enhancements" were added to loan payments. The restaurant company said in court documents that the credit enhancements started immediately with the first payment, and added $200,000 a year to the loan payments.

The eatery firm blamed these extra payments for forcing default, according to court documents.

When it defaulted on the loans, the restaurant company began negotiations to reduce its debt service payments. Balis, the Amresco asset manager, visited the restaurants with consultant Andrew Revella of Lifestyle Ventures to view the properties and assess their value as part of negotiating a deal on the loan repayment.

According to the suit filed by Hospitality Well Done!, Revella signed an agreement that information he gathered on his visit would be used solely to evaluate the operations. Both sides agreed to market the properties to help determine their value, the Vermont company's suit said. It would have the chance to match any offers.

If there were no offers for the restaurants, the loans would be restructured not to exceed $8.9 million, which was the value of the collateral suggested by the restaurant company. In court documents, Amresco and Lifestyle Ventures denied that such an agreement existed.

Revella offered $17 million for the restaurants and to pay off the loan.

Hospitality Well Done! could not match the offer and accused Amresco and Lifestyle Ventures of a fraudulent lending scheme designed to strip the restaurant company of its property.
Contact Leslie Wright at 660-1841 or lwright@bfp.burlingtonfreepress.com