Risk & Reward

Marathon Technologies Corporation

For most companies, a Chapter 11 filing is a last-ditch effort to defend a faltering business against creditors. For Marathon Technologies Corporation, a provider of fault-and disaster-tolerant solutions for Microsoft Windows environments, it was a bold strategy for growth and independence.

Founded in 1993, Marathon relied on angel investments and one round of venture capital financing for its first nine years; by 2002, the company needed a significant capital infusion for continued R&D. Company management found new investors for another equity round, but was unable to negotiate an agreement with existing investors. Sullivan & Worcester lawyers proposed a bold alternative — a voluntary Chapter 11 petition that would wipe Marathon's slate clean and give it the time and flexibility to pursue new equity financing.

Bankruptcy carried risks- including potential damage to Marathon's public image and the possibility that a bankruptcy court would award control of Marathon to its major competitor. To minimize those risks, Sullivan & Worcester helped negotiate a bridge loan and a prepaid OEM contract to increase Marathon's cash flow, allowing the company to operate and, in fact, grow, while in bankruptcy. We also helped communicate to potential investors the advantages of buying into a company with an established name and product that would emerge from Chapter 11 with a clean capital structure. Most importantly, we helped Marathon navigate the bankruptcy process to stay on course toward its goals of growth and independence.

Our strategy paid off. Two leading VC firms came forward jointly to finance the company's emergence from bankruptcy. With investors lined up, we fended off a serious takeover threat from Marathon's competitor. The VC firms and the bridge lenders then acquired the new equity in Marathon, enabling the company to pay its creditors in full, with interest. As a result, Marathon emerged from Chapter 11 as an independent company with new equity capital to support its continuing R&D and growth strategy.