Jet setting

Davidi Gilo, Israeli high tech's wonder boy who until recently held an uncontested spot in the pantheon of successful technology managers ¿ those who led Israeli companies with great technology to success in foreign lands ¿ is no longer necessarily a model for imitation or admiration.

Gilo was always considered a quality manager, charismatic and relaxed, that employees and investors flocked to follow in each new company he founded. He earned himself high regard when he sold DSPC to Intel in 1999 for the unfathomable sum of $1.6 billion in cash, and became a synonym for Wall Street success, along the way making shareholders who had believed in him from the start into wealthy individuals as well. But not all that glitters is gold and the past few months have not been kind to Gilo ¿ at least not as far as his public image is concerned.

Gilo ¿ as befits a high tech guru ¿ provided his fan club with all sorts of useful advice like "remember where you come from", "make careful but determined decisions" and "be patient". But those who drank up every word, might be interested to know that Gilo didn't always heed his own advice.

Gilo in favor of travel

Recently, at Israel's Business Conference, Gilo offered Israeli managers a few rules of survival for dealing with the crisis. "Keep traveling the world" is not a travel agent's advertising slogan, but one that Gilo himself provided. He claimed ¿ justifiably ¿ "it is important for Israeli managers to keep traveling in the world and visiting clients, especially as foreigners are no longer willing to come visit Israeli companies".

And here we come to the most recent proxy document Vyyo (Nasdaq: VYYO) filed with the U.S. Securities and Exchange Commission. The statement informs us that Vyyo paid $390,000 last year for leasing a private jet that served Gilo and other executives on a number of trips "for business purposes". Broadband wireless access provider Vyyo rented the jet from Harmony Management, wholly owned by Vyyo chairman and CEO Gilo and his wife. In other words, with one hand Gilo rented himself a private jet, while the other hand collected the rental fees from a company whose revenue has completely collapsed into an annual loss of $49 million in 2001.

"The cost was low compared to other companies" Vyyo states in the document, but it is important to remember that justifying such flights usually involves showing much better financial results. Harmony also collected $285,000 from Vyyo for "sales and marketing expenses" incurred on Vyyo's behalf. The Israeli company didn't detail what those expenses entailed, and begs the question of how proper it is for a company executive to rent a private jet for a company that would have evaporated long ago if it weren't for its cash reserves. Not to mention any connection to the rental company.

Gilo in favor of hoarding cash

"Guard your cash" was another Gilo pearl of wisdom, and he does hang onto cash reserves impressively. Time does not fare well with the cash reserves of Gilo's companies with their rapid burn rates, so Gilo deals with the problem with massive layoffs, leaving Vyyo with just 30 employees. But where executive compensation is concerned, the picture is entirely different.

Gilo's Vyyo salary in 2000 was $350,000, and he did tighten his belt along with the rest of the company in 2001, taking home just $310,000 and canceling executive bonuses. Nonetheless, it is still very respectable to see seven executives take home $1.5 million and 4.6 million options, a million of which went to Gilo himself. Salaries like that don't make it easy on Vyyo's expense structure.

Gilo doesn't like to talk about expenses

Which reminds of Gilo's reaction to criticism of skyrocketing expenses. In the conference call after Vyyo's Q4 2001 financial reports, an investor got on the line and said he was concerned by the general and administrative expenses item. Gilo told him the company was seeking business opportunities, and the investor answered that he wasn't sure this was good use of the money.

"What was that money used for anyway? Globetrotting? I think I should get some of it," the investor said.

Gilo told him "It was mostly used to finance lawyers, consultants and travel in search of business opportunities," but didn't tell him that some of 2001's $7.1 million in administrative expenses went to renting a private jet.

"It's a buyers market," the investor told Gilo. "Why are you spending so much on finding business opportunities? With that much cash, they should come to you. As a shareholder I call it a waste. And by the way, now that I have you on the phone, are you planning to distribute any dividends to your shareholders?" At this point, the investor was kicked off the line. And this, by the way, was not the first time Gilo did such a thing.