Korean Firm Will Make, Distribute Line : Eagle Signs Deal in Bid to Survive

Admitting that Eagle Computer Inc. “may be out of business” if it fails to obtain refinancing within the next few months, President Gary Kappenman said Wednesday that the company had signed a revised agreement with a Korean firm that will manufacture and distribute Eagle’s current product lines in exchange for $1 million in Eagle preferred stock.

At the same time, Kappenman said the Garden Grove company has laid off more than half of its already depleted work force. About 29 employees were let go on Monday--including Eagle’s vice president of sales and other sales and marketing people--leaving the company with just 28 workers. Two years ago, the once-burgeoning computer manufacturer employed 330 workers.

“The company is obviously in serious trouble and has been for some time,” Kappenman said.

Two industry analysts agree with the chief executive’s candid assessment.

“Each time Eagle does something, it hangs on by a thread,” said Elizabeth Levy, an analyst at Dataquest, a San Jose high-technology research firm. “They have the instinct to survive, but how long can you survive on instinct?”

With the latest agreement, Eagle has become “a shadow of its former self,” said Joe Kapka, vice president at Bateman Eichler, Hill Richards Inc. in Santa Clara. “If they don’t manufacture or distribute anything, what are they besides a glorified R&D; company?”

Eagle is scheduled to report first-quarter earnings late next week. Although unwilling to estimate losses, Kappenman said, “we’ll continue to report significant losses until we get new financing.”

Kappenman said the company is seeking up to $4 million to bring its latest computer line--Concorde--to market. And each day, the search for that financing gets more desperate. “If new technology sits on the shelf too long, it quickly becomes old,” Kappenman said.

Meanwhile, the company has signed a contract with KE&C; America Corp., a newly formed California corporation that is a subsidiary of Korea Electronics & Co. Under the one-year agreement, Korea Electronics will manufacture and distribute Eagle’s current products under both the Eagle and Korea Electronics nameplates. Eagle will receive unspecified royalties for the computers.

But the pact does not include marketing or distribution rights to its yet-to-be-introduced Concorde line, Kappenman said. The new agreement replaces one signed in mid-December, when Korea Electronics tentatively agreed to take control of the company in exchange for an undisclosed amount of cash. Under the new contract, there is no change in control because the stock is non-voting stock.

The original deal had two contingencies that did not pan out: Eagle has so far failed to persuade Bank of America to convert most of its $4.4 million in long-term debt into Eagle preferred stock, and the company has also been unable to locate an investor to put $2 million into it.

But Kappenman said Eagle is still seeking a cash-rich investor. “Obviously, if a new investor comes along, we expect them to try to get control of the company,” he said.

In the meantime, he added, “we’re doing all we can to stay above water.”