From Red Herring:
redherring.com
Priceline.com founder goes on the rebound
By Richard Byrne Reilly
Red Herring
July 16, 2001
Additional reporting by Vinnee Tong.
In a glass-walled office, surrounded by NASA flags and rare books, Jay Walker is plotting a comeback. That's right: last season's Internet icon -- the man who brought you Walker Digital, a self-styled invention laboratory, and Priceline.com (Nasdaq: PCLN), that name-your-own-price Internet empire -- is not ready to give up. Never mind that Walker Digital is down to a skeleton crew, or that Priceline.com's stock has skidded from a nose-bleeding high of $162 to south of a ten-spot.
Hope still resides, Mr. Walker's friends say, in Walker Digital's patent library. The company has 66 technology patents on file with the U.S. Patent Office, ranging from the pedestrian (generating and executing insurance policies for gambling losses) to the wacky (free long-distance calling from slot machines, and one that allows customers to make cash bids to move up the line as they wait on hold with, say, utility and phone companies).
More skeptical thinkers, like Greg Aharonian, publisher of Internet Patent News, doubt that Mr. Walker's and Walker Digital's patent portfolios hold much value. Most of the patents are either too narrow to be worth anything or simply are not valid, Mr. Aharonian says, because they don't meet the official criteria of being novel and not obvious. He cited one patent owned by Mr. Walker, for "method and apparatus for computer-based educational testing," as an example of an overly broad patent that covers a technology used by many others before Mr. Walker.
"There's inherent fraud in the patent system," especially for technology, Mr. Aharonian says. He notes that the patent office doesn't have the manpower to research carefully whether patent applications are in fact new and novel. Successful challenges to patent applications are not uncommon.
Mr. Walker would not talk to us about his patents, though. In fact, he wouldn't talk to us at all; he would only email, or talk through a spokesman. In response to our questions about his plans for the future, he wrote that he and Walker Digital's remaining staff are working "to re-organize its finances and provide a base for future growth."
The question for Mr. Walker's future financiers is this: should this 45-year-old smooth-talking son of a real estate developer, this man once hailed as the Thomas Edison of the Internet, be trusted with more venture capital?
'A BIG F-UP'
It would be unrealistic, of course, to expect Mr. Walker to replicate his success in the last boom. At its height, the privately held Walker Digital had seven portfolio companies ranging from Priceline.com to Atlantis Interactive, whose job was solely to provide technical support for other portfolio companies. Now five of those seven are dead, or nearly so -- only Priceline.com and RetailDNA, which creates point-of-purchase marketing tools, are still standing.
The waning days of that empire were particularly ugly and were not exactly a showcase of Mr. Walker's skills as a chief executive. It came down to this: last November, after failing to secure an additional $40 million round of funding, Mr. Walker began laying off 106 of Walker Digital's 120 workers. Two days later, as a few came back to clean out their desks, word spread that Mr. Walker was about to give a speech in the third-floor conference room.
"It was a classic 'what the fuck is going on' type of meeting," says one person who attended. The ex-employees sat around the conference table, waiting. When the chief walked in, one asked, "I'm curious as to what just happened. Was anybody reading the balance sheets?" Mr. Walker looked at his watch and then, without emotion, and in keeping with his tradition of not swearing, announced: "There's been a big F-up."
There had indeed been a big F-up, but it was a little bigger and a little more complicated than even Mr. Walker suspected: in addition to having burned through about $400 million in venture capital, Mr. Walker now had legal problems over the mass layoffs. By axing more than 100 people with no advance notice or severance, he had violated the federal WARN employment act, alleges Connecticut's attorney general, Richard Blumenthal.
Mr. Walker swears it isn't so. In an email to Red Herring, he said the act doesn't apply to him; he said that under the Connecticut law, Walker Digital counts as a "failing company" and so does not have to give advance notice or severance.
Mr. Blumenthal's lawsuit isn't likely to cost Mr. Walker much money in the big picture -- Connecticut seeks only about $1 million in back salaries. Still, Mr. Walker's newfound insistence that Walker Digital is a "failing company" is an ugly coda to what had been the meteoric rise and fall of his new-age invention laboratory, a place that was expected to manufacture brilliance and billions. Or, as Walker Digital's Web site described the company's potential: "No other company has this combination of capabilities at this scale."
POSTER CHILD FOR THE INTERNET BUBBLE
The so-called new economy's boom and bust produced many poster children, but few as notable as Jay Scott Walker, the former Cornell frat boy who strangely preferred, and still prefers, suits in an industry that dresses its working heroes in khakis and blue jeans. Mr. Walker and his invention lab's most famous creation, Priceline.com, rode the IPO wave to great fame and wealth, even by Internet standards.
In 1995, few had ever heard of the man; by May 1999, Forbes was calling him "An Edison for the New Age." That summer, Priceline.com's stock soared, lifting the value of Mr. Walker's stake to $10.2 billion; many stock sales later, his remaining stock is worth a small fraction of that. In keeping with this new reality, Mr. Walker has halted construction on a 27,000-square-foot manse in Ridgefield, Connecticut.
Meanwhile, many of Walker Digital's creditors remain unpaid. One former Walker Digital employee, Rich Alessi, says he received two calls from a phone vendor, threatening to ruin his personal credit over a phone bill of a few thousand dollars, which Mr. Alessi says is owed by Walker Digital.
Of course, much of the rise and fall can be chalked up to the vagaries of the market. But as is often the case with entrepreneurs who fly very high very fast, Mr. Walker played more than a passing role in his empire's demise. Current and former colleagues say his Achilles heel is the fact that above all, he is an ideas man, intent on spinning out new companies instead of making sure the ones he had already hatched were working. Through a spokesman, Mr. Walker disagreed with this assessment, calling himself an inventor, an entrepreneur, and a "practical businessman."
A LIGHTBULB GOES ON ... AND OFF
Mr. Walker's entrepreneurial career began in 1984, seven years after he graduated from Cornell University with a bachelor's degree in industrial and labor relations. That year he formed Visual Technologies Corporation and signed on high school friend Mike Pascucci. Mr. Walker's idea was to sell plasma light sculptures -- small, fishbowl-sized glass spheres that emitted colored streams of plasma that respond to touch -- for $800 to $1,200 apiece. Funded by seed money Mr. Walker procured from his Cornell fraternity brothers, Visual Technologies soon gained traction.
Mr. Walker flew out to San Francisco and pitched Richard Thalheimer, founder and CEO of the new, new thing of the 1980s: the Sharper Image (Nasdaq: SHRP) catalog. Using the persuasion skills that would later help him raise hundreds of millions of dollars in venture capital, Mr. Walker made a strong impression. Mr. Thalheimer agreed to sell the light sculptures through his catalog.
"Jay got my attention," Mr. Thalheimer says. "He's one of the best salespeople I've ever met in my life."
But when Visual Technologies began experiencing problems in the late 1980s, the relationship with Sharper Image cooled. The direct marketing campaigns Mr. Walker pioneered were faltering, and he was being undersold by RadioShack (NYSE: RSH), which had begun selling its own versions of the sculptures for less than half the price charged by Visual Technologies; Mr. Walker had failed to secure a patent. (Through his spokesman, Mr. Walker disputed that the lack of a patent was a problem, but did not elaborate.) He also needed more capital, but his former frat brothers told him to look elsewhere.
Mr. Thalheimer says the relationship ended badly, with Visual Technologies owing Sharper Image $600,000 to reimburse the catalog for money it had spent advertising the sculptures. "I spoke to him for a year about getting paid back, and he suggested he'd do it in installments," Mr. Thalheimer recalls. "But after a year of various excuses, postponements, and disappointments, I realized he was in fact folding up the company and that I wouldn't be getting my money. And that's how I ended it with Jay."
INSUFFICIENT FUNDS
Mr. Thalheimer says that at one point, Mr. Walker did in fact mail a $600,000 check, but it was not paid because of insufficient funds. The following year, Visual Technologies filed for bankruptcy protection, and Mr. Walker began plotting his next move. (The company ultimately folded.)
The doom came quickly, Mr. Pascucci recalls. "I asked what had happened. Jay looked at me and said, 'What can I tell you? It's over.'" That was 15 years ago, and Mr. Pascucci hasn't spoken with him since. Mr. Pascucci says it wasn't the end of the company that broke the friendship; the two men's paths simply diverged.
After a brief stint at Folio (a magazine about magazine management), Mr. Walker teamed up with a new friend, Michael Loeb, son of former Fortune editor Marshall Loeb, to form NewSubServices in 1991, a direct marketing enterprise that later became Synapse. The company, which bundled magazine subscriptions with credit card payments, soon made Mr. Walker a wealthy man.
But visions of creating his own empire simmered, fed largely by the emergence of the Internet. Steeled by his mantra that you cannot succeed without failing -- Mr. Pascucci says that Mr. Walker often repeated this phrase to him -- Mr. Walker decided to try his hand at entrepreneurship once more.
SHOE SHARES
In 1994, Mr. Walker founded Walker Digital with his own money. He set up office in a futuristic-looking building on High Ridge Park in Stamford, Connecticut; former employees described it as a place where the cartoon character George Jetson would feel at home. Mr. Walker spent long hours honing a vision of the Internet as a vehicle to empower individual consumers.
He modeled his new company on Thomas Edison's so-called invention laboratory in New Jersey. Both labs aimed to turn innovations into commercial ventures. Both were led by men with vision and supported by workers who could make the founders' ideas real. Mr. Walker's aim was to develop technology patents, spin them into working models, and build companies around them.
To achieve this, Mr. Walker hosted Saturday morning meetings that amounted to huge pitch sessions. Surrounded by patent lawyers, confidants, and executives, Mr. Walker encouraged everybody to speak up, no matter how outlandish their ideas were, says one former attendee. One of the odder pitches, the attendee remembers: a system that allowed people to time-share designer shoes, somewhat similar to the way roommates share clothes, only the shoe-sharing would be between total strangers.
THE BIRTH OF PRICELINE.COM
Priceline.com was conceived in 1996 during these idea sessions. The team focused on building its technology platform, for which Priceline.com would later be granted a controversial patent. The idea was simple, but compelling: allowing people to name their own price for airline tickets, hotel rooms, and rental cars by placing bids over the Internet.
With the help of a television ad campaign featuring William Shatner, who had played Captain Kirk on Star Trek, the idea caught on quickly. Priceline.com sold its first discounted airline ticket over the Web in April 1998; the following March, it launched a successful initial public stock offering. Shares were priced at $16, but soared on their first trading day to a close of $69; that made Mr. Walker a billionaire four times over. When Priceline.com's stock peaked at $162 at the end of April 1999, Mr. Walker found himself in the pantheon of the world's richest men.
Needing more office space, Mr. Walker moved Priceline.com out of the Walker Digital complex in Stamford to nearby Norwalk. He soon founded other startups, almost all based on the idea of using reverse-auction technology to sell to consumers.
In September 1999, buoyed by the success of Priceline.com, Mr. Walker easily raised $69 million in venture capital to launch WebHouse, a name-your-own-price Web site that allowed consumers to bid on groceries and gasoline. Although it seemed like a good idea at the time -- Peapod (Nasdaq: PPOD) and the now-dead WebVan were still hot with investors -- it suffered from logistical problems. Among other things, Mr. Walker never built out infrastructure such as warehouses or fleets of delivery vans.
SHE KINNA TAKE ANY MORE, CAPTAIN
WebHouse was launched on October 30, 1999, with a $25 million advertising campaign. Mr. Walker again tapped Mr. Shatner as a spokesman for WebHouse. But Captain Kirk's charm wasn't enough to produce a second success. WebHouse faltered almost immediately. The technology couldn't take the strain of the thousands who logged on during its first days of operation, and the site began crashing.
Mr. Walker had also overlooked larger strategic issues. In late 1999, many food manufacturers felt like Mr. Walker was invading their turf, and they didn't like it. "They were worried he was cannibalizing their business," says one former executive, who declined to be named. Meanwhile, WebHouse was subsidizing hefty discounts on its goods. As one former employee put it, WebHouse was "selling dollar bills for 90 cents."
Nevertheless, Mr. Walker proceeded with plans to expand his empire to the West Coast. He hired Jeff Stiefler, the former president of American Express, as his new vice chairman and put him in charge of building out what Mr. Walker began calling Walker Digital West. He also hired Randy Christofferson, previously president of American Express's customer relationship services division, as Walker Digital's new CEO.
THE $600,000 QUESTION
As one of the first Internet billionaires, Mr. Walker generated huge amounts of press. Forbes put him on the cover of its May 17, 1999, issue; a copy of the article soon made its way to Walker Digital's Web site. Friends and former associates began to take note. Mr. Pascucci, his former best friend, says he came home from playing golf one afternoon and was flummoxed to see Mr. Walker featured on CNN.
Meanwhile, Mr. Thalheimer, the Sharper Image CEO to whom Mr. Walker owed $600,000 from 13 years back, started thinking about a payback. He called; the two laughed and talked about old times. But when Mr. Thalheimer asked about maybe getting shares of Priceline.com stock in lieu of the money owed him, Mr. Walker demurred. That was a long time ago, the Internet billionaire explained; besides, Visual Technologies didn't exist anymore. How could it owe money? Mr. Walker said he had a better idea, and proceeded to pitch Mr. Thalheimer on a new company he was starting. Was Mr. Thalheimer interested in partnering on the venture? Mr. Thalheimer declined.
Soon after, the Sharper Image chief received a plain manila folder in the mail. There was no return address. Inside was a copy of some magazine with Mr. Walker on the cover, with a sticky note attached to the bottom that read, "Hey Champ, how's it going?" It was simply signed "Jay." But there was no check.
Through his spokesman, Mr. Walker told Red Herring he was "surprised to hear that Richard [Thalheimer] is so angry. Sharper Image made a great deal of money from the relationship. In fact, that relationship continued up until 1990."
DUCK, DUCK, MOOSEHEAD
It was during the fourth quarter of 1999 that Priceline.com's shareholders began profit-taking in a massive way. Delta Airlines sold 2 million shares for $125 million; General Atlantic Partners (GAP) unloaded shares for $265 million. Priceline.com insiders, including Mr. Walker himself, also started profit-taking. Then, in mid-April 2000, the stock began the long downward slide from which it has yet to recover. By mid-November, it dropped below $3.
But as the stock market tanked, Walker Digital's massive spending continued. One former employee described it as a startup that was in startup mode for six years. Former Walker Digital employees say they received free catered breakfast, lunch, and dinner. There were beer and champagne bashes held near the company's duck pond every Thursday starting at 4 p.m. sharp. And there was a fun, all-expense paid company off-site meeting at the Foxwoods casino in nearby Mashantucket.
Like other Internet startups, Walker Digital paid its executives exceedingly well; many enjoyed employment contracts that guaranteed them that their equity was worth millions of dollars, no matter how well they performed, former employees say. There were free plane rides, too. Mr. Christofferson, then Walker Digital's CEO, and three other executives were ferried in on charter flights from Delaware almost daily, say former employees. (The transport was part of Mr. Christofferson's employment contract, and the others just rode along, former executives say.)
In a tribute to Mr. Walker, many former employees told us that even though the end of the company was ugly, they enjoyed the time they did spend at Walker Digital. With perks like those, who wouldn't?
A VERY PUBLIC DEATH
But all the merrymaking at the duck pond could not blot out one of Walker Digital's most pressing problems: WebHouse, Mr. Walker's pet project, which was dying a very public death. Insiders estimate that WebHouse was hemorrhaging more than $1 million a day, or about $40 million a month. At the same time, Mr. Walker was still having trouble getting major food and packaged goods distributors, like Heinz and Procter & Gamble, to sign up, says one former Walker Digital executive. (Apparently, at least one such company considered WebHouse a nonstarter. On October 16, 2000, the Wall Street Journal quoted PepsiCo president and chief executive Steve Reinemund as saying in an internal memo, "Frankly, we don't understand how this system could ever make sense for manufacturers like us, or for our retail partners.")
Another former executive says that the food companies actually felt threatened by WebHouse: "The manufacturers were worried he was cannibalizing their businesses, and you can't burn $40 million a month during a time when the markets began changing."
Mr. Walker seemed unable or unwilling to see the writing on the wall, thinking that because Priceline.com had been so successful, WebHouse should be too. "Jay is a brilliant guy, but I think he was blinded by the early success of Priceline.com," says Thomas Wisniewski, a former senior vice president at Walker Digital. "I would describe him as totally self-confident and very persistent. To a fault? Perhaps. He was absolutely convinced these ventures were going to work. And if they didn't, he was going to make them work anyway. No matter what."
Through his spokesman, Mr. Walker says that he wasn't involved in ventures other than WebHouse. "I was convinced it would work if it had the time to. I do not control the capital markets, however. I didn't have the chance to make it work because of the reversal in the capital markets," he says.
FRANTIC FUNDRAISING
Although Walker Digital's shares were declining, Mr. Walker's early investors were again lining up to invest. GAP, Bain & Company, Arena Capital Partners, and others invested a total of $150 million in May 2000. On May 24, Priceline.com's then-chairman Richard Braddock (he is now CEO) pumped $20 million of his own wealth into Walker Digital.
By August, Mr. Walker needed more capital to support the ailing WebHouse and expand the West Coast operations. Dipping into his own portfolio, Mr. Walker sold a total of 8 million shares of Priceline.com to Mr. Allen and Mr. Malone, through each man's respective venture capital firm; all of the $138 million raised, former employees say, was funneled into the ailing WebHouse. In September, a new high-profile investor came out of the wings: Prince Alwaleed bin Talal, a member of the ruling Saudi family, bought 2 million shares.
Using the cash from the stock sales, plus $125 million of his own money, Mr. Walker gave WebHouse one final infusion. But it was too late.
WALKING THE PLANK
In December of 2000, Mr. Walker stepped down as CEO of Priceline.com and said he would also step down from the company's board. Officially, he was doing so to devote more time to his invention laboratory.
But former executives and those close to him say he was pressured to step down. They say the Priceline.com board had grown weary of having Mr. Walker aboard because of the negative press he was enduring over WebHouse; consumers were having trouble distinguishing between Priceline.com and the dying name-your-own-price Web site for groceries and gasoline.
One person with knowledge of the situation says that the relationship between Mr. Walker and Mr. Braddock had deteriorated -- which is ironic because in 1998, when Mr. Walker had stepped down as Priceline.com chairman to take the helm of Walker Digital, he had lured Mr. Braddock from Citicorp to replace him. "Jay and Rick had a strained relationship, and [Mr. Walker] has little faith in Priceline.com" under other leadership, the person says.
Through his spokesman, Mr. Walker disagrees: "I believe strongly in Priceline.com, and my relationship with Rick Braddock is perfectly fine." Mr. Braddock did not return phone calls.
Mr. Walker also disputes that he stepped down from the Priceline.com board under pressure. "I actually left the board position against the wishes of some board members who wanted me to continue," he told Red Herring in an email.
We called each board member to ask about Mr. Walker's resignation. N.J. Nicholas Jr. and Marshall Loeb declined to comment; Paul Allaire was traveling and unavailable for comment; William Ford, Ralph Bahna, and Nancy Peretsman (and Mr. Braddock, as noted above) did not return phone calls; and, kindest of all, Paul Blackney declined to answer our questions, but said he was glad we asked.
BURNING DOWN WEBHOUSE
After burning through more than $360 million, WebHouse folded in early October 2000. More than 400 people were now jobless (though unlike their Walker Digital brethren who got the axe the next month, the WebHouse employees received severance packages, ranging from three months to one year of salary). Unbowed, Mr. Walker told confidants that the reason WebHouse collapsed was because he'd failed to line up the food and gas manufacturers and the financing in one fell swoop before he'd launched.
Meanwhile, problems mounted at Priceline.com. Connecticut's Better Business Bureau yanked the company's membership in September 2000 because of a growing list of unresolved customer complaints. (Membership was reinstated two months later, in November.)
In November, Priceline.com's CFO, Heidi Miller, the former CFO of Citigroup, who had brought great respectability to Priceline.com when she signed on in February 2000, resigned, taking a great deal of that respectability with her. Ms. Miller declined repeated requests for comment.
GO WEST, YOUNG MAN
It was in the midst of the WebHouse collapse that Mr. Stiefler left American Express to run Walker Digital West. Soon after, the West Coast operation launched HighCircle, a corporate recruiting firm catering to Fortune 1,000 companies, and Pulse 123, an online marketing startup, both based in California.
Around the same time, Walker Digital launched Atlantis Interactive in Atlanta, to provide technical support for HighCircle and Pulse 123. Perfect Yardsale, an online reverse-auction site, was funded in an ill-fated attempt to compete with eBay (Nasdaq: EBAY).
As the new companies sprang up, Mr. Walker steered clear of operations. Former employees say he rarely visited the Walker Digital West startups. Instead, he spent most of his time in Connecticut, commuting between the Walker Digital office and his home office. He frequently organized conference calls to see how the companies were doing and to give advice, says one former executive.
THE GREAT MONEY HUNT
At the beginning of November 2000, GAP had provided a $3 million bridge loan. Then Mr. Walker began negotiations with GAP partners William Ford (one of Priceline.com's board members) and Mark Dzialga, hitting them up for $40 million.
Mr. Walker could have tried to buy up his empire by selling off more of his Priceline.com stake, but by then, the shares were off more than 90 percent from the previous April. At the November 15 "what the fuck is going on" meeting, Mr. Walker confided that Walker Digital had only $750,000 in cash reserves left, says one former executive.
As Walker Digital waited for the verdict on the $40 million request, Vikas Kapoor, who had just taken over the CEO post in October, held small meetings to tell top executives not to worry, because the money was on the way, says one former employee. But Mr. Kapoor wasn't feeling so assured himself. One weekend, after learning that Walker Digital had failed to secure additional funding, he called his longtime assistant to warn her of impending layoffs. He decided not to come into the office himself, because he knew as part of the restructuring, Mr. Walker would take his position and demote Mr. Kapoor to chief operating officer.
Mr. Walker asked Mr. Kapoor's secretary where he was, but she didn't know, says one employee who heard the exchange. Visibly distraught at Mr. Kapoor's absence, Mr. Walker walked into the AWOL executive's office and began using his speakerphone. Alternately clutching the desk and his head, Mr. Walker appeared to be shouting, says a former employee who watched the spectacle through a glass door.
GAP declined to provide the $40 million, and insiders suspect that is because they saw Walker Digital as simply a funding vehicle with no revenue streams. In Walker Digital's defense, Mr. Walker said through his spokesman that Walker Digital is an invention lab and that though it does funding from time to time, it is not an incubator.
WE DEEPLY REGRET ...
On November 20, 2000, Mr. Walker decided to throw in the towel. That was the day he fired almost all of Walker Digital's employees, without severance. Simultaneously, he folded Atlantis Interactive, Perfect Yardsale, HighCircle, and Pulse 123, from his office in Stamford.
For the curious, Mr. Walker offered an explanation in a letter dated November 30, addressed: "Dear Former Employee." The board had worked hard to secure the cash, Mr. Walker explained, and were close to getting it, but when the deal collapsed, the only prudent option was to fire most of the staff. The document ended, "We deeply regret this unfortunate and unforeseen turn of events has affected you and so many other individuals."
Later that night, at a Stamford sports bar called Coaches, more than a dozen of the newly unemployed gathered to drink and commiserate. When a television in the bar showed a newscast about the collapse, featuring a picture of a smiling Mr. Walker, the crowd erupted into a loud chorus of boos and catcalls.
THANKS FOR NOTHING
As some Walker Digital employees wandered the building and others huddled in their cubes, the executives at Walker Digital West received a series of phone calls. They were instructed to wind down operations, effective immediately, and to begin the process of liquidating office equipment like furniture and computers. At HighCircle, employees received a letter warning them to keep quiet about the failure to secure the sought-after $40 million. The letter, signed by Walker Digital's executive vice president for human resources, ended, "Best of luck in your job search."
Despite the abrupt dismissal of most of his employees, Mr. Walker did show an occasional -- if cheaply bought -- sign of sympathy. That was the case with Chris Rovtar, an employee who had been hired to head up entertainment at Walker Digital. The axe fell just two weeks after Mr. Rovtar and his fiancée moved from Los Angeles and bought a house in Stamford.
A few days after he was laid off, Mr. Rovtar approached Mr. Walker in a hallway at Walker Digital and inquired about severance. He had a new house and a $5,500 monthly mortgage, he explained, and according to his contract, Mr. Rovtar says, Walker Digital owed him $190,000. Mr. Walker was apologetic, Mr. Rovtar recalls, and cut him a $15,000 sympathy check on the spot.
That apparently wasn't enough. When we talked to Mr. Rovtar we heard a lot of noise in the background, which turned out to be the realtors showing the home he'd just bought to prospective buyers.
AN INSISTENCE ON FAILURE
Mr. Walker could not have chosen a worse enemy than Richard Blumenthal, Connecticut's well-connected attorney general. A veteran prosecutor who graduated from the same Yale law class as Bill Clinton, Mr. Blumenthal has filed a civil lawsuit in the U.S. District Court in Hartford to force Walker Digital to pay back salaries totaling $1 million.
Striking defiant, Mr. Walker says Mr. Blumenthal is flat-out wrong, because Walker Digital did not have the "requisite number of employees to fall under the Act and because we clearly were covered by what is known as the 'failing company doctrine,'" he wrote in an email to Red Herring. "I'm confident that this position will ultimately be upheld."
"Nobody likes to lay people off without generous severance," the email continued, "but when Walker Digital's proposed financing fell through, the Board of Directors determined that it had an obligation to all of the creditors of the company and shouldn't use money that would otherwise go to pay creditors to pay severance claims for which the company was not legally obligated."
THE NEW WAR CHEST
It would be foolhardy to consider Mr. Walker down for the count. Though many are skeptical of him -- "He's the David Koresh of Web sites: he's perfect at getting others to endure the flames," says Roy Love, the former director of information technology at HighCircle -- Mr. Walker has bounced back before.
Lately, Mr. Walker has been parlaying his Priceline.com holdings into a war chest. In seven transactions since August 2000, he has sold a total of 30 million shares on the open market, for total proceeds of $280 million. Recently, his spokesman says, Mr. Walker sold a block of 25 million shares to Asian investors for a little more than $110 million.
One person close to Mr. Walker says that some of the proceeds will be used to pay some of Walker Digital's creditors and former executives.
Meanwhile, GAP be waiting in the wings to fund Mr. Walker's next big idea. Through a spokesman, Mr. Walker says that he maintains "excellent relations" with GAP. The venture capital firm concurs. "We have a good relationship with Jay Walker," a GAP spokesperson says. "While we would never speculate on what investments we may or may not make in the future, we would seriously consider any proposal Jay were to bring to us."
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