If plans for bringing Emersons Ltd. back from the brink of bankruptcy succeed, the Rockville steak house chain will pay its creditors 6 cents on the dollar and a pair of music magnates will take over the company this summer.
A group headed by Steve Rubell, owner of the Studio 54 disco in New york, and David Geffen, former chairman of Electra Asylum Records, has agreed to provide up to $200,000 cash to help pay creditors.
But if more money than that is required, or creditors reject the 6 percent solution to Emerson' fiscal problems, the deal could fall through, Ralph Waldo Emerson, the company's chairman, said yesterday.
Creditors are to meet May 18 to consider the plan of arrangement E filed by Emerson's under Chapter XI of the federal bankruptcy law.
Meanwhile, in a lawsuit that gives a glimpse of the problems that got the chain into the bankruptcy court, Emerson's has sued a meat supplier over 100,000 pounds of phony filet mignons.
The fake steaks-they were actually cheaper filet of sirloin-were part of an elaborate double billing scheme that was used to inflate the company's profits in 1975 by $400,0000, the lawsuit alleges.
The lawsuit was filed in Alexandria Circuit Court last week against United American Food Processors Inc. of Chicago and five of its officers and directors.
Former Emerson's president John R. Radnay and ex-executive vice president Eli Levi helped set up the meat deal, the lawsuit contends. Radnay was sentenced to four months in a federal prison for allegedly filing false reports with the Securities and Exchange Commission.
Radnay and Levi have been out of Emerson's management for some time. Since President William Story quit last December, the company's operations have been run by Mr. Emerson, a Tennessee lawyer and founder of the company.
Emerson, who had been a part-time chairman of the board before the company got into fiscal and legal trouble, said he plans to return to practicing law as soon as the bankruptcy case is closed.
Emerson said his family name will no longer be used for the 17 steak houses if the plan to shift control of the company to Rubell and Geffen succeeds.
"I've insisted on that," added Emerson, who said he expects the new owners to remodel,rename and reposition the restaurants in the rapidly changing food business. Geffen and Rubell could not be reached for comment yesterday.
In addition to Studio 54, Rubell is a part owner in a New York-based chain called Steak Loft.
A group headed by Geffen and Rubell last year paid $50,000 for $500,000 shares of Emersons stock that was held by the company. Their holdings amount to 28 percent of the outstanding shares; they are to receive more stock in return for providing the company with cash.
Emerson said the prospective purchasers have agreed to provide at least $200,000 in cash, but can cancel the deal if the company does not have enough cast to pay the rest of the settlement.
The 6 percent offered Emersons' creditors is even less than the 7.5 percent settlement discussed a few months ago. Even by Chapter XI standards, 6 cents on the dollar is a small payment, but sources familiar with Emersons finances said it is more than creditors could expect if the company were sold.
The main asset of Emersons is not its 17 restaurants, but its tax loss carryforward of some $13 million. If the company merges with a profitable corporation, the losses could shelter several million dollars of income from taxes.
Most of Emerson's creditors will share in a $800,000 note secured by seven of the company's restaurants. The note bears interest at 8 percent and will be repaid over five years.
Another $480,000 will be paid in cash to Fidelity Bank of Philadelphia, which is owed $4.2 million by Emersons.