Despite court filings that say Redstone American Grill has suffered from the economy, defaulted on its debt and hangs perilously close to insolvency, an investor and director of the upscale restaurant chain said Wednesday that it has passed through its worst struggles and has just one more hurdle to clear.
That would be obtaining a judge's order that authorizes the chain to jettison accused swindler Tom Petters from its stockholders.
A subsidiary of Wayzata-based Redstone Grill signed a consent order issued by the New Jersey alcohol control authority that requires the five-restaurant chain to purge Petters as a stockholder by July 15 -- or else.
Petters owns about 16 percent of the firm's common stock, and has a one-third interest in an entity that has 2.5 million preferred shares.
Like other high-end restaurants, the chain's sales plunged as the recession wore on and it suffered a "substantial loss" in 2008, according to papers filed Tuesday night in connection with the receivership overseeing Petters' financial interests.
Those court papers say Redstone Grill is in default under its credit agreement with its principal lender and is in negotiations to obtain a waiver of those defaults. They say Redstone Grill says the loss of its New Jersey liquor license "would likely result in the immediate acceleration of all outstanding indebtedness to this lender and the probable liquidation of Redstone Grill."
Despite the ominous language, though, Allan Hickok, a company director, insisted Wednesday that "Redstone as a concept and as an enterprise is doing quite well."
Hickok, who heads the restaurant industry group at the Minneapolis office of Houlihan Lokey Howard & Zukin, said diners still line up for Redstone's menu, which features a $38 New York strip steak and $7 au gratin potatoes.
The plan to buy out Petters' stake awaits the approval of U.S. District Judge Ann Montgomery, who oversees the Petters receivership. Hickok said the covenant default with its principal lender was resolved within the past 10 days.
As recently as June 15, Craig Oberlander, Redstone's chief financial officer, secretary, acting CEO and a board member, signed a sworn statement saying the default existed at that time. The statement was filed in court Tuesday.
But Hickok and Oberlander each bristled Wednesday at suggestions that their company was seriously threatened by Petters' partial ownership.
Oberlander had said in his written statement that liquor license regulators in New Jersey and potentially other states where the restaurant is located say they intend to pull the restaurant's liquor licenses if Petters remains a shareholder beyond mid-July. That could destroy Redstone, as just over a third of its 2008 revenue came from sales of alcohol, he said.
"The continued operation of all of the restaurants is dependent upon maintenance of a liquor license for each of the restaurants," attorneys for receiver Doug Kelley said in a separate memorandum to Montgomery. "Redstone Grill reasonably believes that loss of its New Jersey liquor license will lead to the closure of its New Jersey restaurant, the closure of other restaurants, and the loss of employment for substantially all ... of Redstone Grill's employees," he wrote.
The chain, with about 750 employees, has restaurants in Minnetonka; Eden Prairie; Oakbrook Terrace, Ill.; Marlton, N.J.; and Plymouth Meeting, Pa.
Hickok and Oberlander insisted Wednesday that they've resolved the issue, pending Montgomery's approval of a plan for Redstone to pay the receiver $75,000 for Petters' interest in the chain. The plan includes an option for the receiver to repurchase Petters' shares within the next three years at the same price if they should become more valuable.
Montgomery scheduled a hearing for July 7 to consider the motions.
Petters remains in federal custody pending a September trial on charges of conspiracy, fraud and money laundering in connection with a $3.5 billion Ponzi scheme authorities say he operated.
Hickok and Oberlander characterized the deal to oust Petters as a minor hindrance to their business, adding that they are more concerned about the public relations fallout for Redstone from news coverage of the deal, which they said made it seem more serious than it is.
"The timing couldn't be a lot worse," said Oberlander, "because of all the other things we're doing."
Oberlander said the company plans to open a restaurant in Washington, D.C., by the end of the year, and another in Westchester, N.Y., in 2010.
Still, problems remain for the chain started by Champps restaurant founder and Petters' friend Dean Vlahos in 1999. Sales at Redstone flagged badly in late 2008.
Even so, Hickok said, things aren't as bad as conventional wisdom might suggest. "If you look at full-service dining, not everyone is getting creamed," he said.
Hickok did not provide detailed sales information of the privately held Redstone, but said locations average $8 million in annual revenue, or about $1,000 a square foot, which he said compares nicely to average casual-dining sales.
Hickok did not give the specific reason for the company's covenant default, other than to say it was technical and largely the result of weak credit markets.
It's not known when Montgomery might issue an order approving the plan to move Petters away from Redstone, but it couldn't come soon enough for the company's investors and directors.
"There's too many Denny Heckers and Tom Petters out there causing all these articles and the last thing anybody wants to do is to be attached to anything that has to do with that name," said Oberlander.