Engage Insolvent, Seeks Chapter 11 Protection

Advertising technology provider Engage said on Tuesday that it is insolvent and in the midst of negotiating a restructuring that would allow it to file for Chapter 11 bankruptcy protection.

The Andover, Mass.-based company said it is close to an agreement with an unnamed third party to sell its remaining assets. However, the restructuring plan hinges on approval from both a bankruptcy court and CMGI, which once owned a majority of Engage and incubated the company.

Should CMGI withhold its consent, Engage said it would close its doors and liquidate its remaining assets. In such a case, the company said investors would unlikely see any return.

A spokesperson for CMGI declined to comment.

After making its name as an ad server, Engage shifted focus, shedding most of its online ad units to concentrate on its software business. The company embarked on a vast restructuring, while facing delisting from NASDAQ. Along the way, it sold off or closed its non-core businesses.

Most recently, Engage exited the online advertising business last November, when the managers of its online ad unit bought the business back. Engage had gained the ad-serving unit in 1999, when it purchased Accipiter Solutions. The company is now revived and selling its AdManager and AdBureau products.

Ironically, Engage now finds its fate in the hands of CMGI, its parent company until relations turned rocky a year ago. In May 2002, CMGI offered to buy the 25 percent of Engage it did not already own. However, negotiations between the two companies broke down a month later, leading to CMGI withdrawing its bid and giving up its board seats.

Three months later, CMGI cut Engage loose, in a deal that forgave $65 million in debt and gave up its 76 percent ownership stake in return for $2.5 million and $6 million promissory note. Since CMGI is still Engage’s secured lender, any move by Engage to use its cash to fund Chapter 11 proceedings would need CMGI’s approval.

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