Sterling R. Haight doesn't believe he's a born loser, but as a frustrated creditor in half a dozen bankruptcies over the years he was beginning to feel like one.
When EECO Inc., a small Santa Ana computer products company, filed for a Chapter 11 bankruptcy reorganization last May, Haight decided he could no longer wait on the sidelines in hope of getting his money back. Haight, who was owed $150,000, joined other creditors and EECO's management to develop a unique reorganization plan that gave creditors majority ownership of the firm and control of its board of directors.
The creditors and management devised a plan to help nurse the company back to profitability. By running the company themselves, the creditors believe they will have a better chance of getting their money back.
"The debt has been converted to company common stock," said Haight, who will become the new chairman of EECO, replacing Robert Bonney. Bonney will probably remain with the company as chairman-emeritus, Haight said Thursday.
"This is one of the few instances where management and the creditors worked well with each other," said Haight, who chaired the committee that represented about 1,000 unsecured creditors who collectively were owed $10.5 million.
Haight said the new management team, which will be announced next month, will be trying to ensure the long-term growth of EECO.
"What's unusual," said Steven L. Bergh, attorney for the creditors committee, "is the two sides got together and got a difficult bankruptcy plan confirmed by the bankruptcy court in nine months. And that's considered fast."
The most difficult issue to overcome in bankruptcy court was the distribution of stock to the various parties, Bergh said. "Everybody wanted more, and that includes the creditors, the employees and management," he added.
Under the new plan, four of EECO's seven directors will be replaced by nominees of the creditors committee. Those nominees are Haight, Francis Odell, Wen-Hu (Albert) Tu and Paul Uritani.
Three current directors will remain in those posts: EECO President George B. DeHuff III, EECO Vice Chairman Charles Strauch and John Stahr, an attorney with the law firm of Latham & Watkins.
According to the reorganization plan, 74% of the company's common stock will be controlled by unsecured creditors. Gary Beeson, who is both a secured and unsecured creditor, will get 14.2% of the company's stock plus ownership of EECO's computer key-pad manufacturing plant in Phoenix. Beeson was owed $6.5 million for a company he sold to EECO years ago.
EECO's outside shareholders, who together own 11.4% of the company's stock, will retain their shares in the company. Excluding members of management, EECO employees will receive 3.4% of the company's shares in an employee stock ownership plan.
"Now that it's settled, we're looking at downsizing the company . . . over the next 30 to 45 days," Haight said. "We're now looking at a company whose annual revenue will be in the $12-million to $13-million range."
That's about one-fifth the $63 million in sales that EECO recorded in 1989, he noted. EECO has 300 employees in Santa Ana, Phoenix, Mexico and Scotland.
"We have a large group of people to draw for future investment in the company," said Haight, owner of Super Circuits, a Santa Ana manufacturer of printed circuit boards.
"With the successful and friendly conclusion of this agreement, it sounds like we're seeing a rebirth and not a funeral of a company," said Todd Ringstad, a partner at the Irvine bankruptcy law firm of Lobel, Winthrop & Broker, which was not involved in the EECO case.