TESTIMONY
Testimony of Terence M. O’Sullivan, Chairman &
CEO of ULLICO Inc.
Senate Governmental Affairs Committee
United States Senate
June 19, 2003
Good morning Chairman Collins,
Senator Levin, and members of the Committee. My name is Terry O’Sullivan,
and since May 8th I have served as Chairman and CEO of ULLICO Inc.
In fact, I would guess that few corporate chairmen and CEOs have had the honor
of appearing before your committee after being on the job for only 45 days. I
am also privileged to have served as the General President of the
Laborers’ International Union of North America since the beginning of
2000. I appear today on behalf of ULLICO. However, there are differences of
opinion on the board on some of the matters under discussion here and my views
are not necessarily those of all directors.
I will report to the committee on
the scope and nature of my involvement with ULLICO over the past three years.
I was first elected to the board
of ULLICO at the annual shareholders meeting in May 2000. The first board
meeting I attended was in November 2000. As it happens, that was the meeting at
which the board adopted the 2000 stock repurchase plan that served as the
vehicle for many of the stock transactions Governor Thompson has described for
the committee.
Directors had no prior notice of
the modifications to the stock repurchase program that were going to be
proposed at that meeting. There was no disclosure at that meeting of the 1998
and 1999 stock offerings to directors and officers. There was no disclosure of
the significant changes in the rules of the repurchase program from those
approved in May 2000, including the increase from 100 shares to 10,000 shares
of those stock tenders that would be excused from pro ration. There was no
disclosure of the way the decline in the price of Global Crossing stock
effected the price of the ULLICO stock that was being repurchased. Finally,
there was no disclosure of the way the 10,000 share pro ration rule would
benefit insiders.
I voted with the majority at that
meeting, a decision I now regret. I can only say that because of the lack of
disclosure of the salient facts, my vote was uninformed. My conduct after that
meeting shows that I would have voted differently had I been fully advised.
For the next 15 months, I was
unaware that anything was wrong at ULLICO other than a decline in business
performance. When press reports of insider transactions first appeared in March
2002, I and many other labor leaders learned for the first time of the true
nature of the stock repurchase program. In light of the serious nature of the
matters being reported, there was broad support, including my own, for AFL-CIO
President John Sweeney’s call for an independent investigation. Jim
Thompson, former governor of Illinois, was ultimately chosen by ULLICO’s
board and agreed to serve as independent counsel to the company to investigate
these matters.
I received a copy of Governor
Thompson’s report in November 2002. It was only then that I understood
that, when the company offered stock to directors and officers on December 17,
1999, it was offering them a sure thing that other stockholders were being
denied. It was only then that I understood that the discretionary repurchase
program had become a multi-million benefit limited to certain insiders.
Further, it was only then that I understood the impact of excusing shareholders
with less than 10,000 shares from pro ration, how it guaranteed that most of
the money would go to a few officers and directors.
The Board met in December 2002 and
decided to appoint the Special Committee to review the report and make
recommendations to the board. Because I have never owned or sold ULLICO stock,
I was one of eight directors asked to serve on the Special Committee.
I am no lawyer and make no claim
of legal expertise. I am a trade unionist. Everything I have I owe to the
working men and women of the Laborers’ International Union of North
America. The conclusions to which I came with respect to Governor
Thompson’s report grew out of my duty to the union that I serve, to
ULLICO so long as I serve on its board, and to the pension funds my members are
counting on.
After I heard Governor Thompson
and read his report, I became convinced that these stock repurchase deals were
bad for my union, bad for my union’s pension funds and bad for ULLICO and
its shareholders.
The Special Committee considered
Governor Thompson’s recommendations in two parts. We unanimously adopted
his governance recommendations with minor modifications. Unfortunately, we were
divided on whether to accept his remedial recommendations. Hotel Employees and
Restaurant Employees President John Wilhelm and I found ourselves in the
minority as those who felt that directors and officers should be required to
return profits from the stock repurchase program.
President Wilhelm resigned after
the Special Committee rejected our position. At various points in time AFL-CIO
President Sweeney, Executive Vice President Linda Chavez-Thompson, Operating
Engineers President Handley, Carpenters President McCarron and NFL Players
President Gene Upshaw also resigned. However, I continue to work with all of
them, and other trade union leaders, to address the ULLICO crisis.
At this point, I feared for the
company’s survival after the board had rejected Governor Thompson’s
remedial recommendations. The labor community had lost confidence in
management. The company’s financial situation was, and remains,
challenged. But, I believed that ULLICO was too important to the labor movement
as a whole and to my union, the Laborers’ International Union, to be
allowed to fail. I therefore chose to stay on the board, but with a broad group
of concerned union leaders began to organize a reform slate of directors to run
for the board at the upcoming annual shareholders meeting.
Our slate included former Federal
Circuit Court Judge Abner Mikva, former U.S. Secretary of Labor Alexis Herman,
and former Chairman of the New York State Urban Development Corporation Richard
Ravitch, as well as eleven prominent elected union leaders drawn from among the
company’s major shareholders.
With the assistance of our
shareholders, the AFL-CIO, the Building Trades Department, the International
Brotherhood of Electrical Workers, and numerous unions and their pension funds
and their QPAMS, we were able to secure the backing of more than 70% of the
shareholders. On May 8, a little more than a month ago, our slate was accepted
by the former management and unanimously elected at the annual shareholders
meeting. Immediately prior to that meeting, Bob Georgine resigned from all of
his ULLICO offices. In the board of directors meeting that followed on the same
day, I was elected Chairman and CEO. I serve in those positions without
compensation.
All members of former management
who were deeply involved in the stock repurchase program have now been
replaced. In addition to my election as chairman and CEO, ULLICO has now
retained an acting President, Edward Grebow, a professional manager with
extensive experience in fixing troubled businesses. The former Chief Legal
Officer and Chief Financial Officer have also left the company.
On May 9th the company asked the
trustees of ULLICO management’s rabbi trusts to make no payments to
anyone pending a board investigation of those trusts. Since then we have also
stopped payment on a series of executive compensation plans, including a
deferred compensation plan and contributions on an executive split dollar life
insurance policy.
The new board met again on May 13,
less than a week after its first meeting. At that time we reconsidered and
adopted all of the Governor Thompson’s remedial recommendations. Those
recommendations included a recommendation that we demand the return of $5.6
million in stock profits from directors and officers participating in the stock
repurchase program. At the same time, the board also authorized an inquiry into
the role of outside service providers in the stock repurchase program.
On May 13th the board also
approved the appointments of a number of committees. Among these was a
subcommittee chaired by Judge Mikva, which is charged with the task of
reviewing the remaining stock transactions, as well as past executive
compensation and past attorney and other service provider conduct.
We have now sent demand letters to
all those whom the board has asked to repay money. If arrangements for
returning the profits are not made within 30 days, the board has voted to take
whatever steps are necessary to effect their removal from any position within
ULLICO. The board awaits the recommendation of Judge Mikva and his committee on
what further steps may be necessary to accomplish return of the money. All
currently active union presidents have either returned or pledged the return of
their stock repurchase profits.
All in all, we are pleased with
our record over the last five weeks. We must do more in the weeks to come, but
we think we have set a standard for how boards should deal with wrongdoing and
its consequences. We are seeking to make our company whole.
The Committee may be aware that
there are a number of U.S. Attorney and regulatory investigations of the
matters at issue here. We have and will continue to cooperate fully with those
investigators.
Let me conclude by saying this.
The good news at ULLICO is that our directors and shareholders---and the labor
movement as a whole---stood their ground, fought and won, and the company is
now acting to obtain the return of unwarranted gains.
Our fight to do the right thing at
ULLICO feels like it is making a difference. The company has not failed. No one
has lost a pension or other benefit as a result of what has occurred. ULLICO
employees have a defined benefit pension plan which is properly diversified and
in no danger of defaulting on its obligations.
There will be sacrifices in the
months ahead at ULLICO. The company faces a range of testing business issues
that extend beyond the stock repurchase program. But what sacrifices there must
be to put ULLICO back on track will be shared, and shared fairly.
I and my colleagues on the board
and in the management team are totally committed to carrying our efforts
through to a successful conclusion. The working people who are both our
ultimate owners and our customers, deserve no less.
I would be happy to answer any of
your questions.
Thank you.