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A US-based company that provides data cloud and data migration services to US-based customers has an offshore development center (ODC) in India. The ODC was set up as a Private Limited Company and Mr. X was hired as a Business Head to the ODC and apart from the market benchmarked pay, he was also given a 5% stake in the India entity. 

Given the growing non-performance of the ODC to the expected level of the headquarters, it was decided to terminate Mr. X employment and association with the Company. The Company sought our advise on the following key issues:

  • Fair valuation of the ODC and an exit value corresponding to the 5% stake held by Mr. X.
  • Board restructuring.
  • Structuring the exit in a way to restrict any potential disruption to the business operations.
  • Implementation of the exit within 15 working days.
  • Mediate the deal and take it to the closure.

The key challenges were as follows:

  • Fair valuation: The net asset value method is most suitable for valuing an offshore development center, but this was not acceptable to Mr. X because the accumulated profits were very low. We had to strategize and ideate on a different valuation method that would be acceptable to both parties.
  • Exit structure and settlement: The exit structure needed to be restrictive in nature to prevent any disruptions to the company’s operations in the ODC. We also had to decide on the mode of settlement, i.e., upfront or gradual settlement.
  • Key critical clauses: We had to include restrictive clauses in the settlement agreement to deter Mr. X from soliciting employees or facilitating their exit, and from joining a competitor or starting up a directly competing company.

We were able to successfully advise the company on all these matters.