Eagle Computer Seeks Chapter 11 Bankruptcy Shield

After struggling for more than two years to revive its once soaring operations, Eagle Computer Inc. on Tuesday filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

The Garden Grove-based company, which listed assets of about $200,000 and debts of $7.2 million, hardly caught the computer industry by surprise with its filing. Analysts had long expected Eagle, which lost more than $40 million in the last 2 1/2 years, to become one of the dozens of victims in the ongoing shakeout in the computer industry.

“It’s almost impossible for the smaller manufacturers like Eagle,” said John Dean, who follows the computer industry for Montgomery Securities in San Francisco. “Why would someone want to buy a machine from a small, no-name company that doesn’t have a product that stands out from the rest?”

Others May Share Eagle’s Fate

Dean predicted that a similar fate would befall other computer makers due to the continuing slowdown in sales and a rash of new, budget-priced products from Japanese and South Korean manufacturers.

Sounding weary and defeated, Eagle Chairman and co-founder Gary Kappenman said Tuesday that the company had waged a “long, hard struggle” to avoid filing for reorganization under federal bankruptcy laws. But in the end, Kappenman said, the company could neither hold off its creditors nor raise sufficient funds to launch the new product that was supposed to have been its salvation.

“The only practical approach is to attempt to restructure our remaining obligations through the court system,” Kappenman said. He said the company hopes to reach agreement with its creditors and emerge from the bankruptcy proceedings by Sept. 1. The company’s largest creditor is Bank of America, which is owed $4.6 million.

Eagle packed a lot of hard luck into its short life.

Founded in 1978 in a Santa Ana garage, the company didn’t make much of a mark until mid-1981, following IBM’s introduction of its Personal Computer. Eagle quickly become one of the dozens of companies to make what the industry derisively called “IBM clones.”

The strategy worked for a while, and, by June, 1983, the company had moved to high-profile Silicon Valley and was ready to make its first public stock offering. However, only hours after the sale made him a millionaire, Eagle President Dennis Barnhart crashed his new Ferrari and was killed.

Eight months later, IBM charged Eagle with copyright infringement, a move that forced the company to remove its products from computer stores and rework their internal programs.

Eagle never seemed to recover. Although it moved to less stylish headquarters in Garden Grove and reduced its staff in late 1984, sales never revived and the company never turned a profit.

Eagle had avoided bankruptcy court for the last two years largely by giving its creditors, once owed a total of $19.7 million, stock in the company and by selling most of its assets and ongoing operations. In the end, the company’s only revenue was from royalties on machines sold by a South Korean manufacturer, and its staff was reduced to fewer than 12 people.

As computer sales slowed throughout the industry, Eagle was even less able to promote its product over those from companies with stronger financial backing. By early this year, Kappenman said, the company’s only hope for survival rested on a finding $4 million in new financing for its new multiuser computer.

Although the company pumped hundreds of thousands of dollars into developing and promoting the machine and even managed to sign a few potential buyers, it was never able to come up with the cash to get the computer into production.