Exec probed in AOL, PurchasePro deals

Kevin Ferguson

Tuesday, June 19, 2001 | 12:32 p.m.

America Online Inc. has suspended one of its executives while the giant Internet service and content provider looks into the company's relationship with ailing Las Vegas-based software firm PurchasePro.

PurchasePro Chief Executive Officer Rick Clemmer said the business-to-business online sales company has no knowledge of the details of Eric Keller's suspension.

Keller, a senior vice president of business affairs at the Internet division of media giant AOL Time Warner Inc., is on leave for six weeks while the company looks into matters related to its partnership with PurchasePro, the Washington Post reported, citing anonymous sources.

AOL owns 5.7 percent of PurchasePro's stock.

Clemmer said PurchasePro generated 51 percent of its revenue last quarter through three customers. AOL was one of the three, and business generated through AOL accounted for the bulk of that revenue.

AOL and PurchasePro have co-developed the Netscape Netbusiness Marketplace, which aims to channel mutual business traffic to each other's Internet sites.

Clemmer said he expects his company to continue "to strengthen" its relationship with AOL.

AOL declined to comment on Keller's suspension.

"As a policy, we don't comment on employee matters," AOL spokesman Jim Whitney said.

George Santana, an analyst with Wedbush Morgan Securities, said he is skeptical about the future of the AOL-PurchasePro relationship in light of Keller's suspension.

"PurchasePro may have lost its biggest champion in the AOL-PurchasePro relationship," Santana said. "We're back in a similar situation when PurchasePro delayed its first quarter earnings. We know it's going to be bad news, but we just don't know how bad until more details come out of AOL."

AOL's Whitney said all revenues related to PurchasePro have been accounted for "appropriately and accurately" by his company.

Separately, in a conference call this morning with investors and analysts, Clemmer said he vows to run a much leaner and credible operation.

He said the company expects to generate second quarter revenue of $18 million, which was the first revenue-guidance announcement since the company was forced twice to revise its last quarter revenues downward.

The $18 million is excluding a non-recurring charge of between $30 million and $45 million. Those are costs related to the re-alignment of the business and other related matters, Clemmer said on the conference call.

Last quarter, the company reported a cash loss of $17 million. Clemmer said this quarter's cash loss will be slightly larger, but he didn't say by how much.

Clemmer said he is charting a new cost-controlled program centered on selling packaged software to businesses, rather than focusing on Internet-based hosting and transaction fees.

"With the reduction of our cash burn rate, we will be generating cash instead of burning cash... within the next three to five months," Clemmer said.

A major part of reducing the cash-burn rate is due to the company firing about 50 percent of its 600 employees since April.

Clemmer, in a Monday phone interview, said the company's current staff of just under 300 is the core of what he needs to restructure and rebuild the business under PurchasePro's new revenue expectations.

The company still plans to operate cyber-based business exchanges, however, Clemmer said the company will focus on selling its licensed package software to businesses.

Some of those software packages include e-Procurement, which connects buyers to their contract suppliers and automates the business process, and e-Source reverse auction software.

"It's unfortunate that we had to (fire half the staff)... and affect so many lives, but it's the only way we can move forward," he said, noting the importance of reducing the company's overhead expenses.

PurchasePro also said Monday its president, Shawn McGhee, plans to leave the company at the end of the month for a job elsewhere. McGhee was hired as chief operating officer in November, and was elevated to president and COO in March.

Clemmer said McGhee mutually agreed to leave because he didn't fit with Clemmer's new vision of PurchasePro.

"McGhee's strengths are in retailing and he brought a lot of great experience from the commerce sector, but our re-alignment of the business is in selling packaged software, which is not in line with his strengths," said Clemmer, who joined the company last month.

McGhee was president of Office Depot's North American operations and executive vice president of merchandising, before joining PurchasePro. PurchasePro declined to say what company McGhee was going to work for.

"We'll leave it up to his new employer to make the announcement," PurchasePro spokesman Steve Stern said.

Clemmer, a former chief financial officer of Quantum Corp, came on board last month as CFO, but was elevated to CEO shortly after PurchasePro's founder Charles "Junior" Johnson quit in late May.

Johnson departed with a cloud of accounting problems hovering over the four-year-old company he founded. The company badly missed first quarter earning estimates, and the company has been forced twice to revise its earnings downward.