Donaldson Familiar With Dot-Com Bust

NEW YORK —  Along with many other investors, the newly nominated head of the Securities and Exchange Commission surfed the dot-com stock wave in the late 1990s.

As a director of EasyLink Services Corp., William H. Donaldson watched the company’s share price quadruple after its initial public offering in June 1999.

The stock has since crashed to under $1, and the Edison, N.J.-based firm says its survival as a going concern is questionable.

Donaldson, 71, whom President Bush nominated Tuesday to be SEC chairman, resigned from the EasyLink board Nov. 12, citing “personal reasons,” the company said in a recent filing with the SEC.

Donaldson was unavailable for comment Wednesday, a White House spokeswoman said. No one has suggested that there was any impropriety on Donaldson’s part in his involvement with EasyLink.

The company, formerly Mail.com, was founded in 1995 by Gerald Gorman, a 12-year investment banking veteran of Donaldson’s former brokerage, Donaldson, Lufkin & Jenrette Securities Corp. Donaldson signed on as an EasyLink director in April 1998.

As one of three independent, or nonemployee, directors, Donaldson had served on the board’s key audit and compensation committees.

EasyLink provides e-mail and other services for businesses, and the concept was hot enough to spark a huge run-up in the firm’s IPO in 1999, amid the general mania for dot-com shares.

The stock soared from its offering price of $7 a share to $25 within three weeks of the IPO, and it reached $27 later in 1999. But the shares collapsed with most other dot-com issues in 2000 and 2001. They traded Wednesday at 76 cents on the Nasdaq Stock Market.

The percentage decline is worse than it looks: To try to boost its share price, EasyLink declared a 1-for-10 reverse stock split in January. That initially lifted the price from 47 cents to $4.70, and meant that the company’s peak price in 1999 was $271, adjusted for the split.

But the stock has spiraled mostly lower since January. EasyLink has yet to turn a profit, and warned in its latest quarterly financial report that its future is in doubt.

“If we are unable to raise new additional financing, generate sufficient cash flow, or otherwise restructure our debt service obligations, we may be unable to continue as a going concern,” the company said.

In the quarter ended Sept. 30 EasyLink said it had revenue of $28 million, down from $30 million a year earlier. The company said its pro-forma loss from continuing operations was $1.4 million, compared with a loss of $1.5 million a year earlier.

EasyLink said in a recent filing with the SEC that it must replace Donaldson with another qualified independent director or face delisting of its stock by Nasdaq. The firm also could face delisting because its shares have fallen below $1, it said in the filing.

In EasyLink’s proxy statement this year, the company said that as of Feb. 28, Donaldson held 13,000 shares of common stock plus 21,500 options that were convertible into common stock when exercised. The options were exercisable within 60 days of Feb. 28, the statement said. No exercise price was given.

In November 2000, in an effort to retain employees in the face of the stock slump, EasyLink repriced a number of its outstanding options to employees, officers and directors, lowering the exercise price to $16.90 a share, adjusted for last January’s split. It could not be determined whether any of Donaldson’s options were affected.

Donaldson, who must be confirmed as SEC chief by the Senate, was a co-founder of Donaldson, Lufkin & Jenrette in 1959. The firm was sold to Credit Suisse First Boston in 2000.

Donaldson served in the Ford administration and was chairman of the New York Stock Exchange from 1990 to 1995. He has been a director of a several companies besides EasyLink, including Aetna Inc. and Bright Horizons Family Solutions Inc.