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
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Smoking at Sweetwaters snuffed out by state board

- By Molly Walsh -- Free Press Staff Writer

The new sign posted at the front door of Sweetwaters bar and restaurant in Burlington gives smokers a bit of bad news.

Regulars who once lit up freely around the bar at the downtown eatery must now head to the great outdoors if they care to smoke, a change resulting from a recent Vermont Liquor Control Board ruling.

The Oct. 27 decision rejected Sweetwaters' bid for a cabaret liquor license renewal and effectively removed the ashtrays from the establishment.

The ruling came after more than a year of legal haggling over the cabaret license, a liquor permit that exempts bars from a 1995 state prohibition on smoking in most indoor spaces with public access, including restaurants.

About 375 cabaret licenses are in place this year in Vermont. To obtain the license, businesses must show that the sale of food is less in amount or volume than the sale of alcoholic beverages and the receipts from entertainment.

Sweetwaters is in an old, two-story building at the corner of Church and College streets. The bar is off to one side on the first floor, with no wall separating it from tables where food is served.

From 1995 to March 2001 Sweetwaters served alcoholic beverages under liquor licenses that did not permit smoking. Then the state approved the business's request for a cabaret license. Smokers were allowed to indulge in the bar area.

A Sweetwaters patron subsequently complained to the state, saying he and other customers were being subjected to tobacco smoke at a business that had every appearance of being a restaurant in a state where the law prohibits restaurant smoking.

The state declined to renew Sweetwaters' cabaret license in 2002. Sweetwaters fought that decision for 15 months, arguing that the Vermont Department of Liquor Control should allow net sales rather than gross receipts in the calculation of the cabaret test. Smoking was allowed as the battle went on.

In late October, the board rejected the net sales argument on the grounds that the law intended gross receipts to be the standard.

William Goggins, director of education, licensing and enforcement for the Vermont Department of Liquor Control, personally went to Sweetwaters and delivered the board order. "I get out in the field as much as I can," he said.

Christopher Ellis, vice president of Hospitality Well Done, the company that owns Sweetwaters, was disappointed by the board's decision.

Without the option of smoking, Sweetwaters' customers might simply opt to walk down the street to bars that can allow smoking, Ellis said. "We will certainly lose bar business, which is our most profitable business."

Patrons at the Sweetwaters bar area early Wednesday evening were few, but they were all happy about the smoke-free air. Laurie Hill and Mike Nelson exclaimed in unison "absolutely" when asked if the snuff-out in Sweetwater's was a good thing.

"I wish all bars were non-smoking," said Nelson, adding that even non-smokers end up smelling like an ashtray when they leave a smoky bar. "That is just absolutely nasty."

Another patron, Jeff Mann, said he likes Sweetwaters better as a no-smoking establishment. Still, as someone who likes to smoke when he's drinking a beer, Mann wondered if Sweetwaters' bar business would suffer.

"I think it's going to require this establishment to be more creative to bring people in."

Sweetwaters waitress Hannah Strobl said she prefers a smoke-free workplace. "It's a better, cleaner working environment."

A proposal to eliminate cabaret licenses and ban bar smoking in Vermont is heading back to the Legislature in January. It failed last session after critics, including Ellis, said it was heavy-handed.

Ellis is conflicted about the proposal. Closing the cabaret loophole appeals to him on one hand because it would standardize the rules for businesses that serve alcohol, he said. On the other hand, the policy strikes him as government's meddling in private enterprise.

"Don't prescribe for business owners who pay taxes and rates and fees and everything else what they are allowed to do in their premises, which they bought and paid for," Ellis said.
Contact Molly Walsh at 660-1874 or mwalsh@bfp.burlingtonfreepress .com
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