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By almost any measure, Mediterraneo is a morgue. It's 8 p.m. Thursday, a time when just a few months ago the critically acclaimed Plano restaurant would be buzzing. But this night the valet attendant stands alone under the awning, shivering from mid-December gusts and watching a paper cup tumble across the deserted parking lot.

Inside, a row of empty stools, neatly angled toward the arched portal of the desolate bar, comes off like some sort of futile summons. The dining room is bright, clean, forsaken, and cold. The chill is felt in the stiff sternness of the host and the servers; in the composure of the guests, who fill maybe half a dozen tables, sipping wine without speaking, staring into the empty space without expression, seemingly wondering what the hell they're doing amongst this moribund chic.

You would expect this same death-warmed-over demeanor to infect Mediterraneo's sibling, Toscana. Just a few weeks ago, this onetime McKinney Avenue hotspot was serving its guests free wine and booze just to keep tables filled. State regulators refused to renew its expired liquor license because of mounting unpaid liquor taxes, forcing the restaurant to give the stuff away, accelerating a bloodletting that had been flowing for months. Yet somehow it's more alive, warmer. The servers smile. The tables, still less than half-filled, quietly gabble with families and a couple here and there sharing a bottle of wine.

"The pastas and risottos can be ordered in full, half, and quarter orders," chirps our server, handing us the menus after we tell him we're just interested in appetizers. Still, there are signs of wear. The bar is empty. The restaurant's liquor license was reinstated, but the wine list, a three-ring thing with a leather cover, barely has enough pages to justify itself. It's hard to believe this is the same restaurant that was emptying and refilling its tables three or four times on a Tuesday night when it was barely 3 weeks old in 1996, a place where weekend reservations were nearly impossible to get and where the star power of the restaurant's founders charged it with as much charisma as the brilliantly crafted Tuscan cuisine.

But founders Michael Caolo, David Holben, and Franco Bertolasi are long gone, their crop of lauded chefs scattered across Dallas and elsewhere. Bertolasi and Holben jumped ship; Caolo was forced from the helm. Now all that's left of FoodStar Restaurant Group, the firm they formed to spread their culinary vision across the Southwest, are these two listing restaurants, struggling under the weight of internecine bickering, crushing debt, and bitter lawsuits.

By the end of this week, these restaurants will be either sold whole to the highest bidder or locked up, their parts sold for pennies on the dollar. With the pronouncement of a bankruptcy judge and a trustee, one of Dallas' premiere restaurant groups will pass on to the scrap heap.


It seems Michael Caolo can converse through only legal pads. Before he even begins to speak, he lays his briefcase on the table and opens it, revealing a stack of the blank yellow sheets. He pulls two pens from a case pocket and lays a single pad on the table. A bulky man, Caolo leans back, shifts himself snugly into a chair, and waits. The first few questions solicit just one-word answers. But as the questions get more pointed, he leans forward, picks up a pen, and streaks the pad with thick, aggressive lines and fat little circles.

"Two and a half years ago, I had two restaurants, no debt, and was happy as a pig in shit," he says, looking up from his sketches. "Now I've got two restaurants in bankruptcy, a lot of debt, and have not had a good time."

Maybe that's a fitting simile for Caolo, 56, who once said in an interview that his first job was shoveling manure on a dairy farm in central Florida. But his situation doesn't seem a fitting end for what was perhaps his most impassioned project. He draws two large ovals with lines spiking out of them. To those lines he attaches more circles. The large ovals are Mediterraneo and Toscana, the smaller his investors.

Neither restaurant had any debt, he says. Each had a group of 25 limited partners who would refer their families, friends, business associates, and employees to the dining rooms, creating a business model that was virtually self-feeding. The restaurants were disbursing checks to their investors. Add to that all the critical acclaim and dining awards (Mediterraneo captured a Wine Spectator Award for Excellence in 1997, while Toscana grabbed D magazine's Best New Restaurant for 1996), and you have a robust formula for success in one of Dallas' most unforgiving industries.

 

But Caolo got stars in his eyes, and maybe a little greed in his gut. Convinced he and his partners had a magic touch, he lusted to expand his restaurants across the country. Along with that lust came a need for capital -- lots of it. Eventually his expansion plans transformed FoodStar into the stuff he once flung in central Florida.

"I ain't a restaurateur," Caolo says pointedly. "I am a creator and a builder. The last thing I wanted to do was screw with operating these restaurants." But screw with them he did.

Caolo looks up from his doodling, as if the first question asked moments ago has just penetrated his skull. "My background is Notre Dame undergraduate and [University of] Texas Law School." He spent 10 years at the Dallas firm Akin, Gump, Strauss, Hauer & Feld until 1980, when he established his own law firm. The firm employed 32 attorneys by the time he left Caolo, Bell & Nunnally in 1997, citing his distaste for the sclerotic culture and friction with one of the partners. "I knew it was too bureaucratic when the management committee spent three meetings arguing about casual Fridays and the dress code," he says with a sneer.

Along the way, Caolo dabbled and invested in a number of businesses, including oil and gas (Emerald Petroleum), health care (Physicians Referral Network), real estate, medical software technology, publishing, and video production and distribution. Some of these dabblings netted him huge windfalls.

But these experiences didn't prepare him for the rigors of the restaurant business. "Beneath all of that ego and greed, I think that [Caolo] has a very romantic side that believes in the romance part of this business," says Gilbert Garza, Toscana's founding chef, who left the restaurant last spring. "But unfortunately, he doesn't have the vocabulary for this business. It's not running a law firm. You're dealing with high-skilled people in a law firm."

Caolo started out in restaurants as a minor player, one of the original limited partners in one of Dallas' most lauded restaurants: The Riviera, the upscale Continental restaurant opened in 1984 by Franco Bertolasi. Caolo says he met Bertolasi when he was the restaurant manager at Café Royal at the Plaza of the Americas Hotel. Caolo told Bertolasi that if he ever wanted to do something on his own, he would back him.

So when Bertolasi teamed up with Café Royal executive chef David Holben and set out to assemble 20 limited partners to invest $25,000 each to take over a former Steak & Ale location at Inwood Road and Lovers Lane, Caolo jumped on board. The Riviera has enjoyed steady success, building a reputation as one of Dallas' premiere dining spots.

But in 1992, Caolo decided to start another restaurant, he says, to help out Bertolasi, who has been struggling with Parkinson's disease for more than a decade. "I didn't need to do this," Caolo says. "I've got other things to lean back on. But Franco just cannot work the tables at The Riviera for too much longer." So Bertolasi, Holben, and Caolo dreamed up Mediterraneo. "For me, it was like investing in the future," says Bertolasi, who refused to comment on the substance of this article.

To launch the restaurant, they formed a partnership called TexItalia, and through the end of 1992 and 1993, they convinced 25 limited partners to purchase shares for $38,000 each. Caolo, Holben, and Bertolasi would serve as general partners. When Mediterraneo opened in 1994 in Plano, the 4,800-square-foot, nearly million-dollar restaurant garnered rave reviews for its food and casual elegance.

The success of Mediterraneo prompted the trio to attempt another restaurant when the former Gaspar's space on McKinney and Monticello became available in 1996. They used the financial model that had worked for The Riviera and Mediterraneo, forming a company called TosItalia, offering 25 limited partnerships for $17,500 each.

Launched for roughly $750,000, Toscana opened in 1996 to gushing reviews and bustling crowds. "The opening was phenomenal," says former Toscana manager Bianca Bertolasi, Franco's daughter. "We had a very blessed opening. We got slammed. And it was fairly steady for the first five, six months at least."

Despite the crowds and the raging success, Toscana didn't bring the financial rewards its sibling in Plano did. "Mediterraneo was a good investment. Toscana never was," says Michael Harling, president of Municipal Capital Markets Corp., who personally invested in both restaurants. Harling says that he received regular partnership disbursements from Mediterraneo, but that there was never a payment made from Toscana. Still, the restaurant seemed to thrive, and he hoped that in time Toscana would slough off checks too.

"I had no debt," stresses Caolo. "I was a big shot in the restaurants. All my partners loved it because I was cutting them checks. And if anyone got upset, I could buy them out."

 

But Caolo was determined to be an even bigger shot. In early 1997, he was smitten with the urge to expand again. He negotiated and signed a lease for the former J. Pepe's space in the Quadrangle for roughly $13,333 per month, with the first six months rent-free. The move proved to be a dramatic departure from the cozy little financial model of the restaurants created and run with the resources of a modest number of limited partners and no debt. "The Quadrangle was the worst location we could have picked," says David Woodward, the original chef de cuisine at Mediterraneo and the eventual executive chef at the Quadrangle, who now is chef at Star Canyon in Las Vegas. "It doesn't seem to be able to sustain life for any restaurant. Nobody has ever been successful there."

Caolo was determined to beat the odds.


The formation of FoodStar Restaurant Group in 1997 generated lots of publicity. And why not? The ambitions of Caolo and his backers were big and could eventually rival Carlson Restaurants Worldwide (TGI Friday's, Star Canyon, AquaKnox) and Consolidated Restaurant Cos. Inc. (El Chico, Spaghetti Warehouse). "Our objective is to build a casual, fine-dining, white-linen restaurant group from coast to coast, primarily in the Sun Belt," Caolo told Nation's Restaurant News.

Plans called for the restaurants to be expanded in four stages eventually reaching 40 restaurants in cities such as Denver, Houston, New Orleans, Phoenix, and Birmingham, Alabama. Local celebrities would have a financial or some other connection to the restaurants in each city. Caolo boasted that each of the 40 FoodStar units would pull in $2.5 million in annual revenues and that the first five restaurants would be completed by the spring of 1998.

Caolo seemed to relish his position as president and chief executive officer of the newly created high-flying restaurant group. "His head is this big," says a source close to the company's inner workings, stretching out his arms. "He flies all over the country, portraying himself as this big-shot restaurant operator. He starts thinking he's God's gift to the restaurant business."

Michael Costa, FoodStar's director of operations until last spring, when he bailed from the beleaguered company to start his own hospitality consulting firm, says Caolo saddled the company with top-heavy corporate offices before it even got traction. High staff salaries, free employee lunches, and other perks weighted down the fledgling company with roughly $90,000 in monthly overhead. "What you have is a guy with a big ego who was spending money like we were a $100 million company," Costa says.

But Caolo defends this overhead. A good chunk of it, he says, represented debt payments. Compensation for Costa and Holben, who was executive vice president and executive chef, were well over $100,000 per year. Caolo pulled down roughly $75,000 per year as a part-time president and CEO, while Bertolasi was paid the same as part-time chairman of the company. Plus, they had cars, cell phones, expense accounts, and other perks. "The infrastructure was in place to support 10 restaurants," Caolo says. "...We anticipated growing quickly."

The pressure to grow was fierce. After signing the lease to develop Mediterraneo at the Quadrangle, Caolo found himself in a capital squeeze. He didn't have the cash to complete the restaurant, yet he had to move fast on the Quadrangle space, or the free rent he negotiated would be wasted.

So he shopped a business plan -- including an aggressive expansion proposal -- to Hunt Capital Group, the institutional venture-capital operation of the Lamar Hunt family whose investments include the Kansas City Chiefs and the Chicago Bulls. He was also steered toward Retail Restaurant and Growth Capital (RRGC), a $60 million private investment firm in which Hunt Capital is a limited partner. RRGC has backed companies such as Elizabeth Arden Red Door Salons and the Texas Land & Cattle Steakhouse. "My first plan had 10 restaurants, and they said it wasn't aggressive enough," Caolo says. That's when he hit them with his grand scheme of 40 restaurants.

FoodStar's strategy called for invading markets with three FoodStar concepts simultaneously, offering the same cuisine at different price levels: Mediterraneo at the upper end with an average of $40-plus per plate, Toscana at mid-level with an average price of $25-$35 per plate, and PoPoLos (which Caolo planned to purchase if he could raise the money) at $15-$25 per plate. "We thought the opportunity was going to be tremendous," says a source at RRGC. "You could really own a market with that type of food." (While there was talk of eventually folding the Riviera into the FoodStar fold, Bertolasi's partners ultimately rejected the idea, and The Riviera remains largely unaffected by FoodStar's predicament.)

 

In August 1997, Caolo received $1 million from each of the two firms. Though he says he was hoping for $3 million to get his plan off the ground comfortably, he was thrilled that he didn't have to woo potential partners at $25,000 a pop. "I could do one-stop shopping and get two million bucks from two venture capitalists and begin to build an empire," he says.

To pour the foundation for this empire, Caolo folded TexItalia (Mediterraneo) and TosItalia (Toscana) into a new company called FoodStar Restaurant Group. The move left Hunt Capital with the biggest chunk of the firm with a 40 percent share; the limited partners with 25 percent; RRGC, Caolo, and Bertolasi with 10 percent each; and Holben with 5 percent of the new company.

But after that initial euphoria, reality began to set in. Legal and professional fees sucked over $150,000 out of their $2 million corporate seed, leaving Caolo with $1.85 million to work with. And folding Mediterraneo and Toscana into FoodStar didn't sit well with at least one of the limited partners.

In mid-1998, Michael Harling sued FoodStar and Caolo over the consolidation, fearing his investments in Mediterraneo and Toscana would be severely diluted. The suit triggered a barrage of vicious personal attacks, mostly flung by Caolo.

"Your bogus lawsuit is a blatant attempt to blackmail and embarrass me into conceding to your 'extortion,'" rambled Caolo in a note fired off to Harling in July 1998. "In my opinion, you are a 'chicken shit partner' and worst of all a 'whiner.' Your sleazy overtures, suggestions and propositions to my fiancée while you are married and we are partners makes you a real 'lowlife.' When the facts are out, you will regret your actions."

Caolo immediately counter-sued, charging that Harling was sexually harassing hostesses in FoodStar restaurants. In an October 1998 letter to Harling, Caolo charged that Harling continually tried to get dinner dates with at least three hostesses, causing emotional distress "sufficient to interfere with their job responsibilities.

"Your great age difference, your married status, and your position as a shareholder combined make your solicitations for dinner dates all the more offensive and troubling," states Caolo in the letter. "...We have enough challenges in this very competitive fine-dining market without your causing unnecessary interference, distractions, and problems."

Thrown on the defensive, Harling secured the affidavits of the hostesses he allegedly harassed. They denied any inappropriate advances occurred. So why did Caolo lodge these allegations? "In a lawsuit, you say a lot of things. That's part of the give-and-take," Caolo says now. "Michael's a good friend. I think Michael Harling's a class act."

But Harling says he has no personal relationship with Caolo and maintains Caolo's sexual-harassment charges were brazen intimidation tactics designed to get him to back off from his suit, which was eventually settled.

"To me it was just a business dispute that unfortunately got down to a guttural personal attack that was totally uncalled for," Harling says. In the settlement, Harling says, he was awarded FoodStar credits for free meals and drinks along with FoodStar stock, which is now worthless.

Harling's suit wasn't the only labor pain that struck during FoodStar's birth. The swanky Mediterraneo at the Quadrangle had problems as well. Construction delays ate through the six months' free rent that Caolo had negotiated, and all told the project chewed up some $1.2 million.

Plus, contractor disputes beleaguered the project, culminating when Ricky McCarter of Beasley-McCarter Construction Co., the general contractor, went into a rage in front of several witnesses and threatened to kill Caolo over unpaid invoices. "I said a few things to him," says McCarter, a wiry, energetic guy who converted the dishwashing room in the restaurant into an apartment and worked around the clock for weeks to meet construction deadlines. "And Michael's response was, 'If I thought you were going to have me killed, I'd have killed you first.'"

McCarter says that he is still owed some $32,000 from the Quadrangle project and that his subcontractors eventually sued for thousands more, but the real bills had yet to mount.


The opening of Mediterraneo at the Quadrangle in 1997 served as a sort of ceremonial christening of FoodStar. But it also was the beginning of its undoing. The restaurant's costs, coupled with FoodStar overhead, demanded consistently brisk sales to break even.

Over the 12 months after its doors opened, Dallas was swamped with roughly 4,000 new dining-room seats: Palomino Eurobistro, Capital Grille, AquaKnox, III Forks, Sullivan's, Al Biernat's, Pappas Bros. Steakhouse, P.F. Chang's China Bistro, and The Cheesecake Factory.

 

While the Dallas market was being flooded with restaurants, FoodStar was gnawing away at its margin for error. On December 4, 1997,Caolo made his lunge at PoPoLos at Preston Road and Royal Lane just as the doors of Mediterraneo at the Quadrangle swung open. He made a $1.1 million deal with PoPoLos owner and real estate investor Maury Jaffer for $500,000 in cash and a $600,000 note, leaving Caolo and FoodStar precious little operating capital left from their $2 million venture-capital investment.

Caolo went back to the Hunts and RRGC for more cash. But he gasped at what he claims they offered. The package called for a $700,000 bridge loan at 12.75 percent interest due in four months plus 25 percent more of the company, a move that would further dilute everybody's stock. Caolo turned them down. (Both Hunt Capital and RRGC deny such a loan was ever offered to FoodStar.)

"[FoodStar] was a house of cards from the get go," says Toscana chef Gilbert Garza. "They [the Hunts] were sharks dealing with a neophyte in this business. They swallowed Michael up."

Caolo was forced to find another source of money, and as the hunger for cash worsened, confidence in Caolo's leadership deteriorated. "He was a hands-off manager," says founding Mediterraneo chef David Woodward of Caolo's leadership style before FoodStar. "He came in, gave his opinion, and let things go."

But as the money situation deteriorated, Caolo tightened the reins and meddled more in the details of the restaurants, especially since he was pumping personal funds into the company to keep it solvent, a sum that eventually reached $1.3 million.

""You'd hear that on a daily basis," says former FoodStar Marketing Director Elizabeth Curl. "'It's my million dollars, so we'll do it my way.'"

Perhaps where Caolo exerted the most control and where he apparently generated the most resentment was in the kitchens. But he says he had to stick his fingers in the kitchens because he felt the chefs were making stupid decisions. "We pulled an appetizer off the menu at Mediterraneo. Guess why? Because it was selling too much; it was too much pressure on the kitchen," Caolo says, shaking his head, chuckling. "The kitchens were way too expensive. We had sous chefs and foo chefs and poo chefs coming out of our ears. David had a Riviera mentality. Rolls Royce." (Holben refused to comment for this article).

But it wasn't only Caolo's meddling that generated the ire of the staff. It was his working style. Insiders describe Caolo as someone who always had to be surrounded by people. He would call for endless working lunches and meetings where nothing would get done, and undermine working relationships by circumventing his managers and maneuvering behind their backs. "He'd call all of us into the conference room to watch him open his mail for three hours," says Curl, the marketing director. "They ran the company like a high school. There was all this he said/she said and rumors back and forth."

Caolo's critics say the type of people he chose to surround himself with were pretty women. Other than Caolo, the front office was staffed with virtually all women. "The girls that passed through the office that were charged with helping develop this into a premier dining group, they were all ill-equipped," Garza says. "They ran through this office, and it's like, 'OK, here comes the next showgirl...' That's a demoralizing thing, to know that people are getting paid good money, salaries to do something they're completely incapable of doing."

As FoodStar continued to sink, the staff started dancing around bill collectors and dodging calls from irate vendors. During one lunch at the Quadrangle, a contractor entered the restaurant to repair two floor-to-ceiling windows -- or so the staff thought. As it turns out, the repairmen were making good on a payment dispute. "They were driving off with two window panes before we knew what was happening," Curl says.

Caolo proposed a series of dubious promotions to pump up business. "There were some screwy ideas that were tossed around," Woodward says. Some of these whims included installing televisions at Toscana, running radio ads for the restaurants at 4 a.m., and offering all-you-can-eat pasta specials. At one point, Caolo even flirted with offering a 64-ounce steak at Toscana, which would be delivered to the table by armed guards. If the guest could eat the whole thing, it would be free of charge.

"Even in the midst of the financial crisis, [Caolo] was discussing with David [Holben] doing a private dining room where David was the only chef and he would cook for a small group of people and blah blah blah," Garza says. "And I'm sitting in this meeting thinking to myself, 'What the hell is this guy thinking? How can he possibly be talking about this when we don't seem to be able to pay our bills?'"

 


By the spring of 1998, sources say, RRGC and Hunt Capital lost confidence in Caolo and, according to Caolo and others, mounted a vigorous campaign to force him out. Sources say the creditors put pressure on Holben and Bertolasi to oust him. "They called David at home and did some backdoor stuff," Caolo says. Around that time, Caolo says, he received a phone call from a prominent Dallas restaurateur. "He played me a voice-mail from the goddamn RRGC guy saying, 'Hey, we have a restaurant property we'd like you to look at.' That was us," Caolo says.

Caolo fought back. He threatened Hunt Capital and RRGC with a lawsuit if they didn't back off. RRGC's board representative and Hunt Capital's two board representatives resigned their FoodStar seats. (Hunt Capital and RRGC deny there was ever a campaign to oust Caolo. A spokesman from Hunt Capital says they were never threatened with a lawsuit, while a spokesman from RRGC had no comment.)

"I said, 'Screw you,'" says Caolo of his response to his two venture capitalists. "'Number one, I'm not resigning, and number two, I'm going to go out and find cheaper money and replace you guys.'"

Caolo's money quest dragged from mid-1998 through mid-1999, when he embarked on a vigorous search for investors to keep FoodStar from slipping beneath the waves. This search included talks with the Richmont Corp., the firm that operates Wynnwood, which in turn operates Seventeen Seventeen in the Dallas Museum of Art and Bistral Neighborhood Bistro and Bakery on McKinney. Caolo knew that Richmont had a keen interest in Mediterraneo in Plano, and whenever he was in financial straits, would prod them for an offer. "He got into positions where it looked like the whole thing was going under, and he would call desperately and see if we were interested," says Richmont assistant general counsel Alan Tompkins. "But his expectation of value always seemed to be quite high. The pricing was never in line with restaurant pricing as we saw it." Sources say that at one point Richmont offered $1 million and at another $800,000. Tompkins would not comment on the numbers.

According to Costa, Caolo borrowed more than $1 million over the course of 1998, through such programs as Dining a la Card, in which enrolled restaurants receive cash advances at steep interest rates in exchange for honoring a members-only dining discount program. (Caolo later sued the company, accusing it of fraud and negligent misrepresentation.) He also borrowed $350,000 from Chicago-based Clever Ideas, a company that runs a similar discount-dining program for Diner's Club.

After a yearlong, nerve-wracking hunt for cash, Caolo finally found his supposed savior last spring, an out-of-state restaurateur (whom he declines to name) who would provide operating capital and assume RRGC's $1 million note. But that spring also saw mass defections. Bertolasi left FoodStar in the beginning of 1999 because, according to daughter Bianca, he grew weary of the FoodStar culture. "It changed from something that was very small and very personal to something that was just big and very corporate," she explains.

Director of operations Michael Costa bolted in mid-April, followed by chefs Woodward, Garza, and Paul Clark (now at Star Canyon in Dallas). But perhaps the exit that rocked FoodStar the most was that of chef David Holben in May; he bailed to join Richmont and its catering and restaurant arm, Wynnwood.

"In this FoodStar ship of fools, I was the only guy with hard money to lose, besides the two big venture capitalists, and they don't give a shit," Caolo says. "Costa jumped ship. David Holben got scared, and he jumped ship. And poor Franco, shakin' like a leaf, he's gone. So who's left? Who catches the shit?"


By July, FoodStar's position had grown still more dire. Caolo's investor got spooked at the last minute and backed out, leaving Caolo with a wad of debt and no savior in sight.

Caolo immediately turned to Clever Ideas and its president, Lee Suckow. His hope was that Suckow knew someone with cavernous pockets and the heart to purchase the RRGC note and then contribute the hundreds of thousands of dollars needed to cover suppliers, payroll taxes, and operating capital. Suckow surprised Caolo by saying that he might be willing to keep FoodStar afloat.

Suckow agreed to purchase the RRGC debt and inject the needed cash in exchange for 51 percent of FoodStar, giving him control. He also agreed to protect Caolo from any FoodStar-related personal guarantees he made.

 

This deal soon flagged as well. Suckow came back and said that he was able to raise only $650,000 of the $900,000 required to purchase the note. He asked whether Caolo could rustle up the additional $250,000. Caolo approached Eric Brauss of Today Financial Co., and Brauss agreed to lend him the money on the condition that Caolo secure it, which he did with proceeds from some stock. The deal was sealed -- and so, it turns out, was FoodStar's demise.

Caolo went strolling through the restaurants in triumph. "We've thrown a Hail Mary pass, and our guy caught it in the end zone," Caolo remembers boasting. "I've saved the company."


Tim Hager doesn't seem like the type to break up a completed Hail Mary pass. Thin, bespectacled, and sporting a graying beard, Hager was brought on board by Caolo in December 1998 as a financial consultant. Caolo hoped that Hager, the former publisher-editor of San Antonio Monthly, could introduce him to new investors.

Hager was charged with scouring the books, working the numbers, and making the necessary changes to get the company on firm footing. What he found was a financial cripple. "Not a single member of the management team had a track record at aggressive growth," Hager says. "So they started out pretty naive." The company needed sales three to four times greater than the restaurants generated in 1998, and management didn't react in time, he says.

Hager didn't look much better to those in FoodStar.

"He'd come into the restaurants and drink and eat and then sit there and say, 'Well, if it were me right now, I wouldn't put any money into these restaurants,'" says Toscana chef Gilbert Garza of the man Caolo fingered to attract new money. "Tim looked like a snake from the beginning."

Others say he accelerated FoodStar's downfall, initiating blunders like changing Mediterraneo at the Quadrangle's name to PoPoLos, a move designed to draw customers with lower-cost fare. "We were already in rough waters," says former Mediterraneo chef David Woodward. "And he [Hager] turned us into the iceberg and put a hole in the stern."

Mention Tim Hager to Caolo, and his full cheeks redden. Hager was the guy Caolo spilled his guts to, the guy he said he would trust his life with in a foxhole, the guy he believed would scour his books and find some magic string of digits to save his company. Instead, Hager became Caolo's Judas. "I've never been so sandbagged and back-stabbed in my life," Caolo says. "Tim Hager is a fucking liar. He was supposed to be my trusted CFO."

Hager, Caolo says, conspired with Lee Suckow to force Caolo from FoodStar. According to Caolo, Suckow began reneging on his rescue deal almost as soon as it was made. (Lee Suckow refused to comment.)

He withheld the needed operating cash, according to Caolo, until September 17, when the pair hammered out yet another agreement. This time, Suckow agreed to meet all FoodStar payroll, tax, lease, and capital needs, plus indemnify Caolo from his personal guarantees to creditors. In exchange, Suckow insisted that Caolo resign and sever all ties to FoodStar. Not only that, but Suckow demanded Hager be installed as president and sole director of FoodStar.

"A change of management was necessary in order to reverse the losses and recapitalize the company," Hager says. "Lee Suckow and I decided that somebody had to do it, and I drew the short straw."

But Caolo saw the move as a devious plot hatched by Suckow and Hager to force him out, renege on Suckow's commitments for additional cash, and foreclose on FoodStar's assets and sell them off to satisfy the note Suckow had obtained from RRGC.

Caolo bases his charge on a handwritten clause Suckow scrawled in the margins of their September agreement, which stated that the entire pact hinged on the reinstatement of the PoPoLos lease at Preston-Royal with Henry S. Miller Interests, which faltered because of missed payments. On September 20, Caolo resigned from FoodStar, expecting to be protected from any FoodStar liabilities. Instead, he says, Suckow's lawyer sent a letter to Henry S. Miller withdrawing any support for the PoPoLos lease. Caolo was aghast. PoPoLos was the highest-grossing and most profitable of FoodStar's holdings. Why would they back out of that?

Caolo believes Suckow and Hager frustrated lease negotiations to nullify Suckow's agreement with Caolo, canceling the infusion of hundreds of thousands of additional dollars needed to keep FoodStar solvent and cover Caolo's guarantees. "There was no conspiracy," Hager says with a laugh. "Everything, absolutely everything, was contingent on retaining the PoPoLos lease. It wasn't inserted. It was always on the table." Hager charges that Caolo thwarted the PoPoLos lease in an attempt to put a gun to Suckow's head and leverage a better deal for himself, a charge Caolo says is ludicrous. (Original owner Maury Jaffer eventually got the restaurant back from Suckow, and intends to reopen it in February).

 

On September 30, Suckow gave written notice that he intended to foreclose on FoodStar's remaining assets October 8.

Caolo immediately counterpunched. On October 7, he sued Lee Suckow and Clever Ideas, alleging fraud and breach of contract. That same day, he frustrated their attempts to foreclose on the restaurants by gathering various creditors (including himself) and forcing FoodStar into Chapter 7 bankruptcy.

"Hager is Suckow's puppet," says Caolo. "The bottom line is, my financial angel turned into a nightmare."

Hager scoffs at Caolo's charges. He says his objective from the very beginning was to serve the best interests of FoodStar and its employees. "I wasn't Michael Caolo's puppet. I'm not Lee Suckow's puppet," counters Hager. "My goal was to save the businesses. Nine months from now, Mediterraneo and Toscana will still be in business. They'll still be serving the fine food and the service that they're known for."

At this point, it's a difficult scenario to imagine. Bankruptcy Judge Steven Felsenthal will rule on January 7 whether the restaurants will be sold and to whom, or whether they will simply go dark forever. Michael Costa is scrambling to put a deal together to either own or manage the restaurants, and rumors say Richmont Corp. is also looking over Mediterraneo, which ironically could put David Holben back in the kitchen. Richmont's Tompkins would confirm only that they received a letter from the bankruptcy trustee soliciting an offer.

But with his $1 million note to use as currency in any bidding war, Suckow appears to have the upper hand. Yet Caolo slyly outlines a plot whereby he could get the restaurants back if Suckow should get them. He boasts he could pry the restaurants from Suckow's grip in a damage award following the conclusion of his fraud suit against Suckow.

"I got everything I wanted in bankruptcy court," Caolo says. "I got a trustee appointed, and I got them into Chapter 7. And Suckow's having to invest more money into the thing. I've got him in the crosshairs. He's going to take a hosing."

This ship of fools may be unsinkable.


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