Eagle Computer Co. of Garden Grove, struggling in the overcrowded office computer market, announced Tuesday that it has tentatively agreed to let its Korean manufacturing partner take control of the company in exchange for desperately needed spending money.
The move gives Eagle, a once high-flying company that suffered a near-fatal fall in 1984, the chance to build the new office computer line on which it is betting its entire turnaround strategy.
The deal allows Eagle to pay Korea Electronics & Co. Ltd. for its computers in preferred stock rather than cash. Eagle will be allowed to retain the cash from sale of the computers to meet payroll needs and other expenses.
Eagle chairman and co-founder Gary Kappenman declined to reveal the value of the stock-for-cash deal, saying only that it was between $1 million and $5 million.
"We've been in a cash bind for the last two years," Kappenman said. "The Korean company just wants to make sure we don't fall."
However, before the deal becomes final, several steps must be taken.
The agreement calls for Eagle to persuade its major lender, Bank of America, to convert most of its $4.4-million long-term debt into Eagle preferred stock. Also, Eagle must find another outside investor to put $2 million into the company, either through a loan or stock purchase. Both requirements must be met by March 31, 1986.
Kappenman said that although Bank of America has indicated a willingness to consider a debt-to-equity swap, bank officials have not yet reviewed this particular deal. Kappenman also said Eagle is pursuing discussions with an unidentified investor who might be willing to put $2 million into the company.
"We've known for months that we can't stay in business without help from the outside," he admitted. "We need a partner. There's no way we can do it alone."
Kappenman said that development of Eagle's promising new line of office computers, which was unveiled last month, underscored how desperately the company needed a partner. He said Eagle has received manufacturing orders from several potential customers but couldn't afford to pay its Korean manufacturing partner to build the products.
Kappenman played down the significance of relinquishing control of the company he founded with his brother in 1978 in a Santa Ana garage. Likening the Korean firm to a venture capital company, Kappenman said the investors always want the ability to exercise control over their cash.
"These fellows don't want to exercise the control, they just want the ability to do it if the situation calls for it," he said. "They want the ability to look over your shoulder. I'm not worried at all."