Gravity Payments CEO Dan Price: Brother’s buyout demands could force him to give up company
Gravity Payments CEO Dan Price said in court today that he could be forced to relinquish the company to his brother and business partner, Lucas Price, if a judge orders him to buy his brother’s shares at the valuation set by an expert witness.
“There’s nowhere where I could get $ 26 million that I know of, so I think Lucas would probably end up with the whole company,” testified Dan Price as part of his defense Thursday against the suit filed last year by his brother. That buyout price is based on the fact that Lucas Price owns about a third of the company, and his expert witness has valued the company at more than $ 80 million.
Lawyers for Lucas Price say he is not seeking the dissolution of the Seattle-based credit card processing company, and wants to see Gravity continue to thrive. They assert that Lucas Price has made “an extremely strong case for a buyout” of his shares at fair value.
Earlier in the week, a court exhibit showed Dan Price with total assets of more than $ 3.8 million in his personal bank account as of March of this year, after he was able to mortgage his home, a move that he has described as a way to give the company more potential resources. However, when asked if he would have the funds to buy out his brother at the suggested valuation, Dan Price testified, “Not anywhere close.”
The testimony, in King County Superior Court in Seattle, is the latest development in an ongoing dispute between the brothers — a case that could determine the fate of a company that has made international headlines for vowing to raise its minimum salary to $ 70,000 over three years.
The lawsuit is based on Lucas Price’s allegations that Dan Price, his younger brother, awarded himself excessive compensation as Gravity Payments’ CEO and worked against the interests of Lucas Price, the company’s minority shareholder.
Although the suit was served on Dan Price before the $ 70,000 announcement, Lucas Price’s attorneys have since cited the salary decision as an example of Dan Price cutting his brother out of key decisions related to the company.
Testifying on the stand today, Dan Price acknowledged that he didn’t involve his brother in the $ 70,000 decision, but said he informed him of the plan through their attorneys. Dan Price said Lucas Price “had never expressed interest in being involved in HR policies or pay policies for anybody other than myself.”
Noting that annual profits have nearly doubled at the company over the past year, to more than $ 6 million, Dan Price said the $ 70,000 salary decision helped the company in part by generating attention that resulted in new business. The story spread around the world after Gravity Payments invited the New York Times and NBC News to cover the announcement.
“I think it led to increased revenue and profit, and I think that the value of that over time will be in the millions of dollars,” Dan Price said. “My understanding is that the company’s value may have close to doubled from 2014 to 2015.”
PREVIOUSLY: Gravity Payments co-owner testifies that he should have been involved in $ 70k salary decision
On the stand last week, Lucas Price testified that he wasn’t opposed to the $ 70,000 minimum salaries, necessarily, but felt that he should have been involved in the decision-making process as one of the company’s two board members.
“It’s a large expense that’s been taken on. It might be a wise expense to take on. It’s hard to say at this point in time,” Lucas Price said. “What we’ve seen so far are a lot of PR benefits for costs that are going to be incurred in the future. We’ve seen a lot of benefits for the employees, which I think are good.”
The trial, which started last week, is now in its seventh day in King County Superior Court in Seattle. In addition to testimony from the two brothers, the case has involved hours of expert testimony about Gravity’s valuation; Dan Price’s salary, bonus and expenses; and other subjects of disagreement between the two brothers.
On the stand this week, Dan Price described a close but often tumultuous relationship with his brother, growing up as two of six siblings, living in rural Idaho after moving from Michigan and Wisconsin. Lucas Price, now 37, is the second-oldest sibling in the family, about five years older than his brother and business partner. Dan Price, the fourth sibling in the family, testified that Lucas was a parental figure and mentor to him as a kid.
“He would think about things very differently than I would, and I think very differently than most people would,” Dan Price said of his brother. “That was hugely valuable for me, because he would have certain insights. I’ve never met anyone else that I could get those insights from.”
But there were also conflicts between them. Dan Price, now 32, remembered a phase during his teens when he was in a rock band and was painting his fingernails different colors. Lucas, returning from college, told his brother that it was a sign he was insecure or wanted attention. Initially, Dan Price was angry, but “about six months later, it sunk in … and all of a sudden it clicked,” he testified, noting that the story “encapsulates some of my relationship with Lucas, because he was right to a certain degree.”
Another time, he said, after Dan Price missed a ground ball during a baseball game, his brother tied him up to a pole and threw baseballs at him, he said.
“From the time were were kids, we would have these battles of will,” Dan Price said. “I would ask my mom about it, and she’d be like, ‘Look, you’ve got to talk with Lucas about that. I can’t really help you with that,’ because she was in a tough situation. So it was a complicated relationship [with Lucas Price] but a very loving and good relationship in very many ways.”
That complicated relationship has extended to their time as business partners. In their testimony on the stand, both Dan Price and Lucas Price recalled a giant argument between them, lasting more than three hours before, during and after a Seattle Sounders game, about their respective roles and contributions to the business.
But at other times, because of their close relationship, they could put the disagreements behind them and move on, Dan Price said.
That hasn’t been the case in the current dispute. Lucas Price served his brother with the lawsuit in March 2015, alleging that Dan Price used his majority control of the company to pay himself excessive compensation, manipulate valuations of the company to his financial benefit, and charge hundreds of thousands dollars in personal expenses to the company.
The following month, in April 2015, Gravity Payments announced that it would raise its minimum salary to $ 70,000 over the course of three years. At the same time, Dan Price reduced his own salary to $ 70,000 to help fund the raises, from his previous compensation of more than $ 1 million a year.
In a May 26 USA Today story, Dan Price pointed to his longtime interest in pay equity, and said the $ 70,000 minimum salary announcement wasn’t an effort to deflect the lawsuit. “I think the facts and sworn testimony flatly contradict that,” he told the newspaper. Testifying in court last week, Dan Price said it wasn’t clear that Lucas Price would actually proceed with the lawsuit after it was served. The suit wasn’t formally filed with the court until after the $ 70,000 salary announcement.
In addition, testifying this week, Dan Price said that Gravity actually had been making a practice of significant pay raises even before the big announcement last year. His lawyers showed this chart in court during his testimony.
On the allegations of charging personal expenses to the company, Dan Price testified this week that he relies heavily on entertainment to build the company’s business — dining at restaurants and then striking up a conversation with the owner or manager as the first step toward winning their credit card processing business.
However, lawyers for Lucas Price point to numerous expenses, including personal and family trips, which they allege were wrongly charged to the company.
“There are some personal expenses that ended up on company credit cards, which was a mistake,” acknowledged Dan Price in his testimony today. “We had a process in place that was supposed to catch them, and my judgment was that that process was working, but there were some transactions that weren’t caught by the process.”
He continued, “There were also transactions that were business transactions, completely allowed by the shareholders’ agreement and by business principles, that ended up on my personal cards, and those were substantial, in the tens of thousands of dollars. And so there were mistakes both ways. The ones that have been identified to me so far, I’ve reimbursed the company for, and it hasn’t added up to very much money.”
Lawyers for Dan Price point to a $ 400,000 payout that Lucas Price received as part of a 2008 renegotiation of their partnership, saying that he has been able to reap the benefits of being an owner of the company without being involved in the day-to-day work of building the business as Dan Price has. Gravity Payments is a privately held company. Dan Price owns about 67.5 percent, and Lucas Price about 32.5 percent, according to filings in the case.
The trial is scheduled to end next week, and King County Superior Court Judge Theresa B. Doyle has told the lawyers in court that she hopes to make a ruling not long after closing arguments in the case.
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