Where did it all go wrong for the original Lotus team?

[glazbagun]

It's all a bit before my time, but when I really started to get into F1 (Damon Hill, etc) Some low running team called Lotus merged with a backmarker team called Pacific. Then fizzled out. I remember people saying how sad it was, but didn't really attribute any significance to it. How epic was their decline when watching it unfold? Was the loss of Chapman the blow that killed them or were they just gradually eaten up by leaner, meaner teams?